Cash Crunch

The 5 stages of financial recovery

Ellie Kay

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As a child I loved to play Monopoly. I'd spend all the money I had trying to win. Now I realize that as adults we sometimes do the same thing. We play with our finances as if it were Monopoly money. In many households, ATM withdrawals account for as much as 20 percent of spending, and most people can't account for how those dollars are spent. Others just use credit cards. We charge vacations, Christmas presents, and car repairs as a matter of habit, even if we know there isn't any real money to cover the expenses.

At some point, such couples face a rude awakening when hit with unexpected medical bills, a hail-damaged roof, college tuition. When faced with the hard facts about their finances, many couples go through five stages similar to the stages of grief. Here they are and what to do about them.

Stage 1: Shock

The shock felt at this stage is directly proportionate to a couple's predetermined belief about their finances. I worked with one couple who knew their consumer debt load was $40,000, and they were only mildly shocked at how that looked on paper. On the other hand, another couple thought they were only a couple years away from being debt-free, only to learn that if they paid only the minimum balance and acquired no new debt it would take 15 years to get out of debt. I watched their mouths drop as they stared in disbelief at the figures.

What to Do: Shock isn't always negative. It's a great place to start taking charge of your finances. As a couple, write out all of your incoming cash flow, expenditures, and debt—every penny. Take a good hard look at the figures and let the truth of your situation sink in. Make that the impetus for change. Make a budget—and follow it. Some resources to help you get started include www.crown.org or www.moneycentral.msn.com under Money Accounts.

Stage 2: Denial

Denial is the most common stage in financial recovery. Many couples tend to spend with one hand and cover their eyes with the other. Some couples never move out of this stage and end up in the land of perpetual financial woes.

Not surprisingly, if you're in denial, you probably don't realize it. That's why it's a good idea to continually ask yourself, Are we financially healthy? Are we on budget? Is our debt load out of control?

(Of course, if you're in major denial, you're probably not even reading this article! If you are reading it, that's a good sign you're conscientious about your finances—and less likely to be in complete denial.)

The more couples deny the seriousness of their financial situation, the more likely they are to try a quick fix such as a second—or third!—mortgage, borrowing from friends or family, playing the lottery, or other "get rich quick" schemes.

Margo Geller, a wealth counselor at GV Financial in Atlanta, Georgia, says there are four red flags of financial denial:

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Originally published in: Marriage Partnership, 2003, Winter

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