Cutting Losses.

Date : July 31, 2008

A lot of you are suffering, and I am sorry about that. In this newsletter I am going to point out one small truth which may help you to better handle any financial problems you are facing.

The simple truth: Most financial problems are compartmentalized.

By this I mean that most financial problems result from a meltdown in one or two areas of a complex financial life. Two years ago I wrote an article coining the term “financial onion” as descriptive of the many layers of complexity your financial (and personal) life has.

In the case of your financial world, if things look bleak it is often a failure in one or two layers of the “financial onion” and not an overall failure of the whole. When this happens it is time to “cut losses” by removing the one or two layers which are causing problems. It is rarely necessary to throw out the entire onion provided you take proactive steps to restore financial health.

If you are suffering and feeling bleak you should take a step back and ask what portion of your complex financial world is causing you the problems. Then ask, how can I get rid of the rotten layer.

You might have several areas of your life which are doing well, and one or two which are not. In many cases the one or two areas which are not doing well can be chucked without destroying the rest of your financial world. How is this possible? Simple, because most financial problems are compartmentalized. When you wake up in the middle of the night worrying everything seems connected; however, upon closer analysis you will find that they often aren’t.

For example, a meltdown with a real estate project can often be contained by dealing with that specific problem. In many cases lenders can be persuaded to look to the real estate as the sole security for a loan. If the project has gone bad and it looks like it is about to bring you down, don’t give up. Instead, step up and try to resolve the problem. Often, by isolating the “bad” investments and “cutting the losses” relating to a specific investment the rest of your financial world can be saved. It is a lot like a ship which is damaged but has separate water tight compartments. The same is true with almost all other types of investments, whether it be a donut shop or a software development firm.

Again, divide and conquer. Get rid of the rotten apple, but don’t get rid of everything. It is the old “baby with the bathwater” adage except that it is relevant to your financial world.

I hope this helps even one reader deal with their seeming insurmountable problems. Taken one at a time, they often seem to go away. Just trim the bad and nurture the good.

Sounds a little bit like Peter Sellers in Being There.

Have a healthy and protected week.

Rob Lambert

ABOUT THIS EDITOR:

Rob Lambert, Founder and former law professor is considered to be foremost expert on tax compliant asset protection structures. A contributing editor to Lexus Nexus debtor creditors series of law books Rob's passion is implement client wealth plans that stand the test of time and hold up under duress.

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