What Lessons Have You Learned from the Great Recession?
Many personal finance pundits are now referring to recent economic events as the “Great Recession.” I don’t understand why folks want to use “great” to characterize an economic calamity. “Awful Recession” would be more appropriate. But I digress.
Mr. ToughMoneyLove has learned a few things and confirmed a few other previously held beliefs. Here they are in no particular order:
1. When it comes to managing the economy, there are no real experts. If there are any experts, we don’t know and can’t predict who they are. If we could, we should have put them in charge years ago. Instead, we got big spender Bush and even bigger spender Obama. Even Warren Buffet’s weaknesses have been exposed. He’s no genius in bad economic times either. He just has a multi-billion dollar safety net to fall back on. Our government’s safety net? The taxpayers.
2. Do not act on the judgments of others as to what you can afford. Banks, mortgage brokers, car companies, FICO, real estate agents, the government – they are all about encouraging you to borrow and spend. If that means pushing you over the limit of what you can actually afford – well they don’t care. They may care a little more now, but that will change. You’ll see.
3. The stock market has too much risk for most people. This has been a game-changing realization for me. The investment industry – financial planners included – are in the business of pushing you into equities because that’s what they know and what they sell. It’s how they make money, often at your expense. Unless and until you have positioned yourself for a secure financial future, taking on substantial risk in the stock market can easily backfire. Just ask the millions of scorched baby boomers. I am completely re-vamping our investment strategy – never again will this happen to us.
4. Asset allocation models don’t always work. A lot of us had carefully studied asset allocation and invested accordingly. Yet, when the market tanked, asset categories that were supposed to be non-correlated fell in unison. That wasn’t supposed to happen. When fear is driving investment decisions, as it did in 2008 -2009, you can throw the computer models and historical analysis out the window.
5. Be prepared for anything. This means building levels of redundancy and resiliency into your budget and spending. Being able to cut back on short notice is essential. If you are counting on anyone other than yourself to protect your financial future, stop counting. Debt is your enemy. Don’t listen to the “good debt, bad debt” nonsense. No debt is good if your cash flow takes a hit. This I knew. Recent events confirmed it.
6. Working for the man never looked so bad. I tell our sons that it doesn’t matter as much what you do for a living if you can work for yourself. Own your business and control your destiny or you too can be a layoff victim. Yep – figured that out in my first full-time job 35 years ago when I witnessed the older engineers being regularly culled from our ranks.
Those are some of the lessons I’ve learned – how about you?