It’s been over 10 years since the Great Recession, and like many such existential traumas, many of us have a story. We can vividly remember where we were and how the events impacted us. In many ways those of us who lived through it will never be the same and will manage our finances differently. The economic implosion resulted in job losses, massive asset devaluations, forced moves, etc. highly disruptive stuff. Many have bounced back after a long 10 year stock market bull run, housing at an all time high etc., BUT many have not. Many are still strapped with huge school debt, car loan debt and struggling with steady employment. The disparity causes many of the huge populist frustrations people have at the moment, it is the way folks feel when left behind. None of us would like that feeling.
For me personally, my journey included a job change, a city move and a divorce! You know, no big deal, JUST KIDDING! It was highly disruptive. Everything eventually worked out fine. A couple of things. I stayed put in both the stock market and real estate market and was riding the rollercoaster down and eventually back up.
But my point here is not to spin some tail specific to me. I simply started thinking about a few things I learned along the way and helped me to achieve some peace of mind later. I also hope these concepts will help prepare us all for the next system shock.
1. No one can predict the market, create your own asset mix that lets you sleep at night
Thousands of so called “experts” would have told the world in 2006 that housing and stocks were not going down. Some said real estate never goes down.
Well, as we know everything fell like a flimsy house of cards. Over the course of a short timeframe people lost half the value of their 401ks, half the value of their homes and many lost their jobs!
The point here is not to do a look back at what happens, there is plenty of chatter about that. The point is for you to visualize something like this happening again and asking yourself if you are prepared. Here are key questions in my opinion:
How would you feel?
Is your asset allocation right?
Do you have an emergency fund?
How is your debt level?
I think answering these questions honestly would go a long way in being prepared for the next downturn!
2. Make peace with housing
Many people lost everything due to risky mortgage and housing situations. Blame yourselves, blame the government, blame Fannie Mae and Freddie Mac, heck blame Elmo! Whomever is to blame, we need to move forward and learn. For me it meant buying a house I could actually afford, not the elusive “dream home” fairytale. Make peace with where one lives, make it the best it can be if you can actually afford it.
3. Don’t count on the Government or Big Business (count on your self, family and community)
One big driver of the FIRE and FI community is that many of us learned that no one will bail us out. No one but ourselves. Big banks and wall street will be bailed out by our money, but we won’t. Big business simply exists to provide a product people will buy. We have to be our own support system, as individuals, as a family and as a community if we are lucky. Building support with family and community takes a certain kind of investment in other people, in a higher calling, in doing what is right even when no one is looking.
I think the bottomline here is be as prepared as possible. Have debt within reasonable levels. Don’t use it for things that depreciate in value. Have an emergency fund, etc.
I DON’T HAVE ALL THE ANSWERS
I don’t fully know what were the right or wrong things to do during the great recession. I do know now that things like this happen to the economy at times. The country and economy are very dynamic systems made up of millions of hard working and intelligent people. Hopefully as time goes on all can heal from the devastation and move on to live productive and truly wealthy lives.