Recovering emotionally is far more complicated. Truly bouncing back from a job loss means retraining your brain and consciously shifting your perspective. And as the nation struggles to climb out of the worst jobs crisis since the Great Depression - the Labor Department reported Friday that the unemployment rate remains stubbornly high at 9.1% - millions of people are grappling with the issue.
Consider Rachel, who asked we not use her real name. Just two years ago, she was feeling flush. Single and in her mid-30s, she earned $85,000 a year at a major New York City financial institution. She owned a three-bedroom home close to where she grew up, which she bought in 2005 for $400,000. She ignored a broker's efforts to steer her into an interest-only mortgage, put down 40% of the purchase price and took out a 30-year, fixed-rate loan at 5.75%.
"I thought I was doing all the proper things," she says. Rachel built an emergency fund of $18,000, and had saved $60,000 in her company's retirement plan. "That little 401(k) I started when I was 24 or 25 -- that was my pride and joy," she says.
But now it's all gone.
Rachel was laid off from the bank in 2009. It took two years to find another job – in a southern state at less than half her previous pay. She drained her savings and 401(k), borrowed from family and used credit cards to continue paying her mortgage and other expenses. After two years on the market, the house finally sold in the summer for $330,000.
Rachel's story is emblematic of the "national crisis" described by Federal Reserve Chairman Ben Bernanke a speech last week: the most severe long-term unemployment since World War II, plummeting home equity, declining wages. Some 45% of jobless Americans have been out of work for at least than six months. In 2009, average homeowner equity -- the amount an owner would pocket after selling the house and paying off the mortgage -- stood at 39% in 2009, the lowest level in the post-war period, according to an analysis by the Economic Policy Institute. (As recently as the mid-1980s, it averaged 70%.)
Moreover, real median household income was $49,445 in 2010, a 7% decline from 1999, the Census Bureau reported last month. In addition, just half of workers laid off between 2007 and 2009 who had three or more years of prior job tenure have found new jobs -- and among those, 36% have salaries at least 20% lower than their previous pay.
"I think about the money I had a few years ago and it makes me nauseous," Rachel says. "I was looking at a quarter of a million dollars [in net worth]. Fast forward three years later and I have more debt than I do cash. Sometimes it just scares me to death."
From the sale of her home, Rachel paid off the mortgage, a $25,000 home equity loan, and her family members. She stashed the remaining $20,000 in the bank. She called her credit card companies repeatedly, negotiating the lowest possible rates -- 3% to 7% -- on her $24,000 debt. Rachel knows that from an interest rate perspective, it makes more sense to use her savings to slash the debt, but she's too traumatized by her recent experiences to wipe out her emergency fund. "What if something happens? No job to me now is secure," she says. "I'm shaken to the core."
Recovering from devastating financial loss can demand a radical shift in perspective, says Rabbi Benjamin Blech, 78, a tenth-generation Orthodox Jewish Torah scholar and author of Taking Stock: A Spiritual Guide to Rising Above Life's Financial Ups and Downs. He published it in 2003 after turning his $50,000 nest egg into $7 million during the dot-com boom -- and then losing it all. Granted, he still had his house, his job as a professor at Yeshiva University and his pension, but the trusts he planned for his children, grandchildren and the university were wiped out
"We can't confuse our net worth with our self worth, but we often end up doing so because we absorb that from the culture," Blech says. "Even I was doing that for a while, thinking, 'Wow, I'm worth this.' I had to re-identify myself and say, 'I am a husband, a father, a professor -- what is my value to my family, to society?'
"The biggest challenge was not to lose self-confidence and become depressed, because then I wasn't good as anything -- and I had a lot to contribute," he continues. "I had to redefine my worth by a different standard, and to that extent, I thought it was an invaluable experience."
Blech coped with his loss by researching the philosophical and spiritual masters on the topic of money and meaning, as well as contemporary authors, humorists and celebrities, whose ideas he peppers throughout his cathartic tome. He is passionate about positive thinking: "To focus on fear is to allow it into our minds and hearts and potentially into our future," he says. "Say to yourself, 'I am going to get through this.' There are people who have gotten through much worse. There's an old Jewish saying that if 10 people brought bags of their problems and put them in the center of the room, each one would choose to take their own bag back."
Emotional recovery also requires a huge mental effort. "It's increasingly well-known that the brain [registers] not just absolute amounts but losses and gains," says Columbia marketing professor Eric Johnson. On average, losses loom twice as large as gains," leading to an effect known as loss aversion. Even as Rachel makes financial progress -- she recently started making 401(k) contributions again, and she's chipping away at her debt -- her brain is wired to focus on what she's lost.
For instance, in the spring, Rachel can look back at the progress she has made in debt payoff and 401(k) contributions. She's decided to wait until January to check her credit score, hoping for a big impact from her debt pay down. She can also gauge her progress in boosting her income: After she was laid off, she designed and sold inspirational T-shirts at street fairs, and she's looking for opportunities to do the same in her new state.
It might also help Rachel to view money as part of a broader wealth portfolio that includes good health, family and friends, enjoyable co-workers, interesting work, and the like, says Johnson: "Think about all the good things about your situation before you think about the bad things."
Blech also advises that people reconnect with the aspirations underlying their money: "What is it we are really after?" he asks. "We are looking to be happy, and the world has conned us into believing the more money we have, the happier we are. I'm not talking about someone who is impoverished. [But] if your basic needs are taken care of and you let the loss of money destroy you, it wasn't the money that did it to you -- it was your response to the loss of money. The key has to be looking at what you still have. Hope is a wonderful word and it has to get us through."
Despite the losses, Rachel says she's grateful for her job and comfortable life. "I know I'm blessed, and there are people in worse-off situations," she says. In fact, she encounters them daily: She works with underwriters at the bank on mortgage modifications.
"I read hardship letters all day," she says. "We just have so many. We are starting to chip away at it for those you can save. For people with no money coming in, it's a sad scenario. I've been there and can relate to those people."