There’s no doubt that many of us were financially strapped these past few years. We can thank the Great Recession for that. As the three-year anniversary approaches, I’d like to take a moment to reflect on the financial lessons this recession has taught us.
1. Start saving for both short- and long-term early. If and when we face another hard time, it’s important to have something stashed away for it. Six months worth of living expenses in your savings account is a good start.
And put as much as you can into a retirement account now. If you start saving $12,000 a year at age 25, you’ll have over $3 million by age 65 (assuming an 8 percent rate of return). If you start saving the same amount at age 40, you’ll collect just under $1 million. Projections show the average person may need anywhere between $850,000 to $1.5 million to retire comfortably.
2. Ignorance is not bliss. Don’t be blindsided by another recession. Take control of your finances and know exactly your money is going. Keep the dialog with your financial planner open and also know what’s happening with your investments.
3. When purchasing a home, only buy what you can afford. With the crash of housing bubble and the resulting mortgage crisis, low mortgage rates got people excited about achieving their dream of home ownership. Even if they weren’t yet ready for it.
With incredibly low interest rates came ambitious buyers. People were getting approved for bigger mortgages which meant bigger homes. Once mortgages adjusted, so did the financial realities of the eager home buyers. Enter the credit crisis and, subsequently, a recession. The lesson in all of this is to avoid adjustable-rate mortgages. Only buy what you can afford.
4. Be prepared to look for a new job. Recession or not, you should always be prepared for a lay-off. The easiest way to do this is to have a plan. Update your resume monthly. Participate in professional development seminars to keep your skill set fresh. And don’t be afraid to put yourself out there at some local networking events. Finding a new job is a lot easier when you know somebody.
5. Don’t let fear make decisions for you. Being financially alert is important, but don’t let your finances scare you into submission. Maintain a positive attitude about them, and don’t be afraid to take calculated risks. By choosing to think and speak positively, you invite more positive people and events into your life.