The last few years have been difficult economically. Job stability is down, and the likelihood of getting a raise may have decreased depending on the filed you are working in. Additionally if you do not have a job it may be even harder to find one. Overall the last few years have been frustrating for a lot of people. In addition to dealing with job loss some people have defaulted on their mortgages and have faced other difficult situations. It is important to take the lessons learned from this difficult time and to apply them to how you handle your finances in the future.
Lesson 1: Avoid Debt as Much as PossibleMany of the problems began with people overextending themselves in order to purchase a home or in other ways. The entire economic downturn began because of the bubble in the housing market, but people who carried a large amount of credit card debt found it difficult to cope with the changes in the economy and the higher costs of basic items. It is best to avoid debt as much as possible. If you are not currently out of debt, or if you are trying to recover from a recent job loss, you should make getting out of debt a top priority. This will help you to gain control of your finances, and make a difficult situation easier to get through.
Lesson 2: Live Within Your Means
The most important thing the tough economic times have taught us is to live within your means. That means more than just making sure you do not go into debt each month. It means making sure you do not take on any unnecessary debt such as car payments so you do not overextend yourself. For example you may need to purchase a car, but it may be better to choose one you can pay off in three years, than taking out a five year loan that stretches you to your capacity. This will only hurt you in the long run. It is important to embrace a frugal lifestyle.
Lesson 3: Plan for the Future
It is important to be saving money for retirement from the time you have your first job. The sooner you begin the lower the percentage you will need to contribute to retire comfortably. You will reach a point when the money you save is earning more than you are contributing each month. When this happens your retirement savings will begin to grow quickly. In addition to saving for retirement, you need to plan for home repairs, your children’s college, and a down payment for a home if you do not already own a home. You can also plan to save to purchase a car with cash and save money on interest in the future.
Lesson 4: Prepare for the Unexpected
The instability of the economy over the last three years has taught us the importance of being prepared for the unexpected. Going into the future with a recovering economy, it is important to continue to plan carefully. The biggest thing you can do to prepare is to save up an emergency fund. This can cover unexpected expenses such as emergency medical bills, but it is mainly there for you in the event you lose your income. Ideally you should have at least six months of expenses set aside. You can also set up sinking funds to cover unexpected bills like care repairs or emergency home repairs. This will prevent your from dipping into your emergency fund if you don’t need to.
Handling Your Finances Now
Basically, if you want to be financially successful, you should not need to change any of the basics during a good economic time versus a bad economic time. You need to spend less than you make, save for the future, and invest wisely. Following these simple principles will help you prosper during both good and poor economic times. Learning to apply them may come from living in difficult economic times, but you can take the lessons you have learned and begin to really take control of your finances and your future.