May 5 2009|05.35 PM UTC

Samantha Eckles

12 Personal Finance Lessons To Be Learned From This Recession

Category: Personal FinanceTags: , , ,

Everyone I know is sick of this recession, and sick of hearing about this recession. For one, the media’s attention to the global financial situation is depressing. But as many have pointed out, we are in this situation because of our own devices. On the individual level, poor financial and debt management, have exacerbated outside factors such as the housing market collapse and high rates of unemployment. For others, indiscriminate consumer debt has led to a number of individual crises. But in such a climate, there is a lot that can be learned. While it would have benefited everyone to know this several years ago, here are twelve personal financial lessons that can and should be learned during this recession.

Learn How to Plan Ahead

source

It’s no secret that poor planning contributed to why so many people are currently in untenable financial situations. Don’t Panic. Figure out where you are at, where you want to be and put in place a realistic plan for getting there. The majority of businesses without plans in place before they start operations do not succeed. So if you are serious about creating a way to get ahead, or even just caught up, this step could not be more necessary. Unique circumstances will come up and cause you to stray from your plans temporarily, but structure is necessary in order to monitor your progress, and stay focused.

Learn From Past Mistakes – Then Put it Into Practice

source

Americans have an average of $10k in credit card debt. In order to identify how you came to be where you are at specifically, take a look at your spending for the last year (or even several years). Then locate what percentage of spending went to each type of expense. Chances are, the figures will be surprising and maybe upsetting at first when, for instance, you realize how much you spent going out to dinner or on entertainment. Figure out a realistic percentage that you would like to reduce your less-than-necessary expenses by, and then work this into your plan. The sense of urgency caused by the current recession can be an impetus to your learning about, and consequently fixing, poor money management practices.

Learn to Understand, Hate and Attack Debt

source

Prioritize debt. Snowball. Pay off your highest interest rate first. Basic advice, right? The problem is that people have been regurgitating this theory for years, but most do not put it into practice. Paying off debt can be an arduous task, but it can also be quite rewarding. This step requires individuals to plan out their debt and then follow through with attacking it. A plan may seem difficult to stick to at first, but after several accounts are paid off, you’ll be surprised to see how quickly the remaining debt is repaid with more money being allocated to principal in subsequent months. One byproduct of this exercise should be a new understanding of debt – and you will probably learn to avoid credit cards like the plague.

Learning to Distinguish Want vs. Need

source

After figuring out much money you’ve unnecessarily spent in the past, this should come naturally. I’m not suggesting that you should never go out to eat or splurge on anything ever, just that you implement a higher level of self control. For instance, the term “special occasion,” should have a greater meaning once you decide to get serious about your finances. When you condition yourself to realize that spending $100 on cocktails and dinner when you go out for your third cousin’s coworker’s birthday will mean that you are able to spend $100 less the next month on your aggressive debt repayment, you’re on the right path. In short, consider the opportunity cost of your spending.

Learn to Save – Even if You Start Small

source

The oldest piece of financial advice relates to saving: put an emergency plan aside (6 – 9 months worth of expenses) should you lose your job. But, does it make sense to service a savings account with a 2-3 % yield, when remaining credit card debt rates of up to 29%? Yes, because it is not wise to forgo saving entirely in order to repay debt. Instead of spending less on debt repayment, save in the form of cutting out extra expenses. The problem for many people is that they live month to month and they don’t develop healthy saving habits until they are in their thirties or forties. Contributions to a savings plan should be recognized as the first of your necessary monthly expenses, so that money saved will never be thought of as money that can be spent. Even if your savings rate starts small, you can always increase in the future.

Learn to Monitor Your Expenses

source

Scrutinize your current bills – cell phone plans, internet, credit cards, et cetera. I’d suggest to continually call your service providers to find out if there are better deals available, or if they can do something special for you. These days, customers have more power than ever; for instance, try suggesting that you will go elsewhere if vendors are not able to sweeten existing deals. Using leverage to get a better deal is a time-honored tenet of this more or less ‘free market’. Companies know that it is more cost-efficient to keep an existing client than it is to get new customers, and using this in your argument with customer service may be a way to get reduced pricing, or extra free services.

Learn to Stay on Course

source

When I first started to cut debt aggressively about a year ago, I found myself able to dramatically reduce my monthly bills and pay down debt at a rate that I never could have imagined. The problem was once I paid about half of my debt down, I found myself at a plateau. It was only after realizing that I had replaced my old expenses with new ones did I start making ground again. My once super-frugal approach to eating out and playing golf only about twice a month became more lax, and this was putting a damper on my ability to repay debt at my preferred rate. It took an evaluation of my recent expenses to see how I had strayed from my plan and to figure out how to get back on it. This is extremely important to keep in mind: be careful not replace some unnecessary expenses with others.

Learn to Take Responsibility

source

Personal finance is all about being responsible and taking initiative: no one will do these things for you, and learning to manage your finances is not something that you just wake up with one morning. It is every individual’s responsibility to monitor their bills and make sure they are not incurring any unnecessary fees with their banks or credit card companies, and also to monitor their credit score closely. And, if necessary, to repair their own credit. For those that own their own home, now is a great time to refinance and a good credit is imperative to improve your rates; for those looking to buy, knowing what your credit report says is only the first step in understanding what type of interest rate you will likely get. And, of course, the better your credit is, the better your interest rate will be.

Learn How to Get Organized

source

To those who are not used to monitoring and managing their finances closely, this may sound like a lot of work. But once you get a system in place, it should only take about one hour per week to stay on top of everything. This will include: making sure that credit card due dates are not changing, that rates are not increasing, monitoring activity to your charge accounts, tracking the progress of your overall debt-to-income, and making sure you are always getting the best deals possible. These of course, are just a few of the examples.

Learn to Become Competitive and Creative

source

One of the most important things to take from a recession is that nobody can just coast by anymore. For those seldom challenged in the workplace, it would make sense to improve your skill set, continue education, and network now. The medium- to long-term for many, still remains uncertain. For those that have fallen prey to our generation-high unemployment rates, it’s time to reevaluate your previous career and at least start considering other alternatives. In today’s changing and evolving marketplace, dynamic individuals are those which succeed.

Learn to Become a Deal Hunter

source

While the housing market deflated, prices in most other industries have dropped in the last year as well. If you are serious about improving your personal financial wherewithal, try thinking about buying new as a way to replace old, not to satisfy want. Even better, think about buying slightly used as a way to replace the old. The ‘replacing’ aspect is key. If you need a newer vehicle, try finding a fleet rental and you will be blown away by the potential savings. Even in industries where consumers don’t traditionally haggle for prices, deals can be found with retailers looking to unload stock.

Learn to Diversify

source

Where is your money going every month, and from where is it coming in? Cash? Currencies market? CDs? Commodities? Residual income? Profit-sharing? Trust fund? Is it possible for you to create a second income stream? In these uncertain times, individuals with contingencies and fall back plans usually fare the best. Think of the old saying, “don’t put all your eggs in one basket”. Always be on the lookout for producing additional income-generating opportunities. For some this might mean getting a part-time job, or taking on freelance work. My parting advice: be wary of get rich quick schemes on Late Night TV.

Share this article:
  • Digg
  • Reddit
  • del.icio.us
  • StumbleUpon
  • Facebook
  • Tipd
https://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/digg_48.png https://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/reddit_48.png https://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/stumbleupon_48.png https://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/delicious_48.png https://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/google_48.png https://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/yahoobuzz_48.png https://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/twitter_48.png

{ 9 comments… read them below or add one }

JobSearchNinja May 6, 2009 at 8:10 pm

Recessions do not only bring about tough times financially. Sadly, they set men against men and raise moral issues that most of us would rather not have to consider.

Reply

Whyfrown May 6, 2009 at 11:48 pm

hey man your article is pretty good ! Im learning some ways to cut down on my spending from this article!

Reply

Meshia May 7, 2009 at 5:10 am

Saving money is hard for all of us and non of us feel like cutting back on our lifestyle but I have found a good saving without loosing anything. I canceled my cell phone contract and bought a prepaid Tracfone and now I am saving about $35 per month and I am still making the same number of calls. I then was able to cancel my land line because Tracfone gives me long distance and international calls to about 60 country’s for the same rate as a local call. The savings are going half towards paying off debt and the other half to an emergency savings account.

Reply

Jack Stevinson May 7, 2009 at 6:02 am

A brilliant article!

Terrific advice and really interesting. Obviously a lot of time and effort went into this.

I believe people need all the help and advice they can get at this difficult time.
Keep up the good work.

Jack

Reply

MyCreditGroup.Com May 7, 2009 at 9:25 am

Excellent article, well written and in my opinion on the money.

I posted a link on our blog about it.

Reply

JamesAven May 7, 2009 at 10:05 am

I have been using Desktop Budget from Spryka.com to manage my personal finances for a few months now. Its the easiest to use free, offline personal finance software I have seen so far.

Reply

UPrinting May 7, 2009 at 9:45 pm

Recession or not, it would be wise to learn how to plan and prepare ourselves for the future. Planning will allow us to save more money, be more efficient with our time, and we’ll be less stressed too! So what are you waiting for? :)

Reply

Belúcio Haibara May 18, 2009 at 6:08 am

Learning to appreciate our time more might be essential to learn how to use our money better. Since most of us make money working it’s pretty clear that time and money are connected and since we can only work so many hours a month our money should be used wisely.
Loved the article.

Belúcio Haibara

Reply

June September 13, 2009 at 7:24 am

This is an excellent post that everyone should read. Often hard times will give people a wake-up call to learn to be more resourceful and less wasteful.

Unfortunately, too many people of this generation haven’t been taught to use basic common sense when it comes to saving, recycling and making do with what one has. Just changing one simple thing in your life can make a huge difference; change 3 things and it can move mountains.

For example, I quit using the dishwasher. I wash all the dishes by hand now. My electric bill dropped $50 a month by making this one small adjustment. So I am saving money in my budget and helping to save the environment by cutting down on the use of electricity. My water bill dropped too, but not as significantly as the electric bill.

Just one small change….

Reply

Leave a Comment

Previous post:

Next post: