Finance Spirit

My mother used to often tell me: “It’s an ill wind that blows no good.” Unfortunately this economic meltdown will be nothing more than an “ill wind” that has left many as devastated as the Midwestern farmer in the “dust bowl” days if they fail to learn the critical lessons it is trying to teach. But before you pack up your family and belongings and head to California in defeat, like some image from The Grapes of Wrath, read on. Here are five important lessons you can take away from this recession to make your life better and more prosperous in the future:

1) Get Out of Debt : – many people were needlessly hurt by this recession because they had too much debt when the economy turned bad. Debt is easy to acquire but hard to pay off and it can be a heavy weight around your neck when money gets tight. When you are barely treading water the extra weight of debt can drown you. So if you want to avoid putting yourself in such a vulnerable position make a commitment to get out and stay out of debt now. Your financial needs can be greatly reduced when you are debt free and that means you can more easily survive temporary cutbacks and lay offs.

2) Have an Emergency Fund :- one of the biggest reasons people don’t build more savings is because they are carrying too much debt and have no money to save. Once you are out of debt, build an emergency fund equal to 6 to 9 months of living expenses. That way you will be prepared when the next financial crisis occurs (and it will occur.) If recent history has shown us anything about our economy it is that cycles of growth and recession are continuous. Every period of economic growth is followed by recession and if you are debt free and have sufficient savings you can weather the storm. So get out of debt and then save, save, save.

3) Invest in Yourself : – the stock market can be risky business and if you have money in a 401k, or any other qualified plan, you have seen firsthand just how risky it can be. Before you go throwing darts on Wall Street why not take some time (and your money) and invest in something you have more control over…yourself. Benjamin Franklin once said: “Invest the coins from your purse into your mind and your mind will fill your purse with coins.” A small investment in your financial education and skills can pay a huge dividend in income.

4) Diversify : – If you want to insulate yourself from the devastation many people experienced when they lost their jobs you need to diversify your income streams. If all your income is from one source, what will happen when that income source dries up? Being totally dependent on one source of income is dangerous at best and this economy has shown just how vulnerable an income source can be. While I am writing this, General Motors and Chrysler are dropping their dealership contracts with thousands of dealers across the country. Some of these dealers have been with them for decades and never imagined that income stream would be shut off. But it has, and it has left not only the dealers but their employees as well hanging out to dry. It wouldn’t be so hard to accept if they had diversified income sources and weren’t solely dependent on GM.

5) Reclaim the Entrepreneurial Spirit : – in the nineteenth century the majority of Americans were self employed (or entrepreneurs). Whether they were farmers, ranchers, sheep herders, or trappers their security was based on their own hard work and wits. It was this spirit that built this country. However, in the twentieth century the industrial revolution brought big business and people moved in to towns where they took jobs that promised “security.” The concept was simple, work for a large company and retire with a pension. That security was real, for a while, but it is an illusion today. Large companies that were once considered too big to fail are dropping like flies. The world and the economy have changed and you need to change with it if you want to survive.

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