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The global recession we are going through affected many people. In fact, it is stated as one of the worst recessions to hit the world since the Great Depression. Now I’m not sure about you, but I definitely don’t want to witness, let alone be a part of the next great depression. What’s done is already done, but I’m not going to contribute to the next downturn. Here are a few of the lessons we need to remind ourselves so we don’t help create the next recession.
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Don’t buy that Porsche 911 Turbo if you make $35,000 a year.
Seems a little bit obvious, but living beyond their means is a major issue for many people. So many use their credit cards without thinking about the consequences, spending lavishly and unwisely. The U.S. alone has $962 billion in credit card debt. Spend less than you earn and put some away in a savings account. You never know when a rainy day will come… -
There is a storm outside, where is your umbrella?
Have you setup an emergency fund for your family? Let’s say you lost your job today. Do you have money set aside? Your credit card doesn’t count; technically using your credit card during a rainy day/month would only make the situation worse. The financial crisis showed us that credit we always thought would be available (even for pre-approved credit lines) isn’t always guaranteed and we should never depend on it. Try and put away 3 to 6 months worth of total expenses in a savings account. Call this an emergency fund. -
Company Stocks: “Makes me look loyal to management and dedicated to the company”.
Is your 401k heavily based on company stocks? You might want to pull out half or a quarter of the stocks you are holding. Sure, you may think that owning stocks in the company shows that you are dedicated. Heck, you are technically an owner in the company! But what if the company goes belly up? Will you have enough of those penny stocks to put food on the table for your family? Cash out at least a quarter of your stocks and diversify. You were going to leave them in the stock market anyway, why not spread your risk? -
Save what you earn.
Simple enough but tons of people don’t save at all. This is different than an emergency fund. A portion of each and every paycheck you receive should be deposited into a savings account. Put some of your pay into an online savings account (after you pay your monthly expenses), and invest the rest. -
If I only had a couple thousand dollars…
At the beginning of the recession when all the big companies stocks took a major hit. A light bulb went off in my head, I could buy all these blue chip stocks on sale (Bank of America comes to mind) and hold onto them for 5 to 10 years, easily double my money when the recession is over. Like most people, I wasn’t prepared for the recession and didn’t have the cash available. Plus, I was terrified certain companies I wanted to invest in were going to file Chapter 11. I ended up dipping my toes in the stock market, and bought some GE stock. Just because it is all doom and gloom out there doesn’t mean there isn’t opportunities available. Caveat: Make sure you understand the risks of buying a stock that has taken a major hit. Those who bought GM stock when it went down is practically wiped out. Sometimes, a stock is cheap for a good reason!
There are always options available to you, depending on how you look at it. We can only learn from our mistakes if we can highlight what they are. Hopefully some of these tips will help you in the future, because a recession is inevitably going to hit us again.
This is a guest post by Bank Guru, a contributor for a financial blog in Canada, banknerd.ca. He is passionate about the banking and financial industry. He believes that consumers aren’t being informed properly and educated enough in personal finance, and he wants to help. You can find Bank Guru at banknerd.ca or you can contact him at bankguru@banknerd.ca.
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