...during the economic crisis, and more importantly, what are you changing because of it?
Human beings are funny. A crisis occurs and they run around wailing and agonising over it, watch it happening minute by minute wringing their hands and saying, 'Woe is me, we'll never get out of this.' And then as soon as the crisis or pain has past, they merrily go on to other things and forget that the bad stuff ever happened. Often this is a good thing - do you really think you'd have a brother or sister if your mother truly remembered the pain of childbirth?! However, in the case of economic crisises or recessions, the same thing happens, 'Whew, glad that one's over, think I can get a new car now?'
It's pretty easy to jump right back in and go through just as much surprise and pain all over again when the next recession occurs, but many of the lessons we're learning in this recession are about how to have a better life. The curtain was pulled back on the consumption treadmill (I think of Toto pulling back the curtain on the Wizard on the Wizard of Oz) and once many of us saw what was back there, we didn't want to be part of it any more. I don't want to be manipulated and conned into standing on a financial cliff putting my family and my happiness at risk just because the media, the government or society wants me to buy more stuff, which incidently, only moves my money from my pocket to theirs. 'What's in this year, the latest gadget, must haves' and anything that emulates the stuff of the ultra wealthy, to be avoided!
Things I've learned during this and previous economic crisises (been through quite a few now so there are some things that have stuck!):
Ignore the 'News' and Get on with Life
Watching the minute by minute microscopic examination of everything that is going wrong economically doesn't make you informed, it makes you depressed! And focusing on how terrible it all is doesn't get anything or anyone moving in the right direction. The reason this crisis has lingered on for so long? Because people are scared. Why are they scared? Wouldn't you be scared if you listened to horror stories every night? What do you think you're getting when you turn on the news at 7:00? Don't make it worse by watching the news, shut off the noise and look for ways to make it better.
Keep Your Honesty
An email from a dear friend reminded me of this one. It seems so core, so essential, so basic that we don't even think about it, but it's one of the things which can go by the wayside in times of stress or financial disruption. Cut a corner here, step on someone there quickly evolves into stabbing people in the back and stealing their money, and it can seem so easy in dire times. It can escalate to a surprisingly large degree, Enron, or grow to Maddoff proportions (he began his Ponzi scheme in the early 1990s trying to satisfy the demands of clients during an economic recession). It's been called a slippery slop and once on it can be difficult or impossible to get off, the only answer is just don't start. And it certainly doesn't make you feel any better about yourself or the situation. Keep your integrity because you'll want it when the recession is over (and when you look at yourself in the mirror).
Cash is (Still) King
Having spent close to 20 years in various forms of self employment (and clients who sometimes take FOREVER to pay), one of the things that I've learned is that access to cash creates the ability to weather many storms and not having access to cash causes you to do stupid things - like selling valuable assets for far less than they're worth. Trying to set up a big pile of cash or access to a big pile of cash during a crisis / recession can be pretty close to impossible so it's one of the first things I work on in times of growth. Having access to that pile of cash helps with a multitude of things - loss of a job or income for yourself or a loved one, sudden illness of yourself (or your car) are the ones which typically cause a 'lack of cash financial derailment'. Building that pile of cash using the concept of 'pay yourself first' is an important one, because if you don't, when a financial crisis occurs you won't be able to pay anyone. And to be honest, rather than a pile, I work towards having access to a mountain of cash, it makes me feel secure during the economic ups and downs. We keep our 'cash stash' in a offset mortgage type of product where we can draw on the cash as we need to, but while it sits there it reduces the interest we pay on our mortgage. Is it the best return we could get on that money? Sometimes yes, sometimes no. But it's saved our backsides numerous times when clients were slow to pay or when we've had gaps in employment, and it's allowed us to make money by having access to cash for an investment that suddenly popped up. Protect yourself, build a pile (and eventually a mountain) of cash.
Debt is the Devil Incarnate
I don't care what anyone says, for me debt is bad, very bad. Particularly consumer debt or debt for things which depreciate. If it's not going to grow in value (preferable by more than the interest I have to pay), I don't want to take on debt for it. Debt is one of the most freedom limiting, slavery creating things around today. With little to no debt, you can do virtually anything - quit a job you hate, start a business you love, travel the world, take time off to be with your children, etc., etc., etc. With loads of debt, you can do nothing but spend your life working to pay it off - ugh! Get free - get out of debt and use debt for asset aquisition only.
Spend My Money on What 'I' Want, Not What Everyone Else Wants
Aren't there a lot of folks interested in getting their hands on our money?! And aren't they good at making us feel like we MUST have, NEED to have the latest thingywhatsit / posh item of the day? After 46 years, I've gotten a bit tired of being manipulated, conned, and brainwashed into buying things I really don't want or need. So many day to day living things are really advertisements in disguise. Somebody just dropped a rather nice looking magazine through my letterbox which I just flipped through. It wasn't really a magazine, but rather a series of articles written about stuff to buy. We're inundated with calls, demands, enticements trying to get us to buy. But if you stripped all buy this, buy that, buy the other out, if you shut down all that demanding / enticing noise, what would you yourself buy when no one else was influencing you? We are intelligent independent people, why do we need someone else to tell us what to buy? Here's an interesting exercise to try, spend a month or two without allowing anyone else to influence your buying decisions, NO ONE but you. Don't watch or read any adverts (try watching movies rather than the telly but avoid looking at the obvious soda can, Apple computer placements), avoid the ad-ridden papers / magazines and try to avoid looking at all the signs if you can. Keep out of the mall (make essential purchases without 'shopping' online) and don't exchange shopping on the web for shopping at the mall. Watch to see your true individual wants and needs begin to emerge, what do you really want without someone else telling you what you want? Paris Hilton's latest handbag - uh, no thanks. That big dorky watch - I'll pass. And actually I quite like the car that I have, thank you. Regain your independence, spend your money on what you want!
The Money in Your House is Not Real Money (Unless You Can Get it Out)
As many folks during this recesssion have found out, the money in your house is not real money. If you can't get at it, it doesn't exist - no matter what it's worth on paper. The idea that you can buy successively bigger and bigger houses gaining more and more equity doesn't work if you can't tap into that equity somehow or you can't sell it when you need to (as many have realised). And it's really difficult to generate an income from your house while you're living in it, most people won't rent it from you if you're there! Buying ever bigger houses because of the bigger growth in equity only works during growth periods which we don't always have. If your life savings is in your house and the market tanks, you're stuck. Our strategy? Rather than buying successively bigger houses to grow wealth, we bought additional ones. It cost the same (if not less). They generate an income which we add to the offset mortgage, providing us with access to cash (makes a nice little circle, doesn't it?!).
Relationships and Experiences Matter, Stuff Doesn't
What does your stuff do for you when the market crashes, when you go through an employment 'challenge', when the world is not going as it is supposed to? Nothing, nada. Think your car's going to give you a cuddle when you need it? Nope, it's going to break down and present you with a $1000 bill just when you could really use that $1000 on something else, say food or shelter perhaps? How about a lively evening spent enjoying the company and companionship of your stuff? Hmm, not really. All right, let's try this. A summer's evening spent on the patio over a good meal with some friends or family whose company you really enjoy? Talking and laughing (who's done what, funny things that have happened, new things encountered), tasting wonderful food and toasting with a nice glass of wine - probably a bit more memorable (and certainly no more expensive) than that new shirt. There's an excellent custom in the UK called a pub walk where you walk / hike through beautiful country and finish up with a nice pub lunch. Or a walk with a gourmet picnic lunch, imagine sitting at the top of a hill with the world spread out in front of you with your loaf of crusty French bread, cheese and the company of someone you love - somewhat more memorable than a trip to the mall. When you're 90, you'll remember people and experiences, not things that you bought. Acquire relationships and experiences, not stuff.
Don't Panic (These Things Happen on a Regular Basis)
Recessions happen every 5 to 10 years, so guess what? There will be another one, and another and another and... this is the seventh recession since 1960. The key is to remember that and structure our finances / lifestyle so that when the next one happens (and it will) that we're not surprised. That way, when they do happen, we don't panic about it. If you know it's going to rain, you're prepared, you wear a jacket or take an umbrella. If you don't know it's going to rain, you're not prepared and your silk suit gets ruined. You now know it's going to rain, where's your umbrella?
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