5 Financial Mistakes From The Last Recession
When it comes to money and financial trends, I try to not be pessimistic. However, I am a realist – and considering the headlines and current financial climate, I do think it’s important to look at the mistakes of the past in order to avoid them in the future. After all, regardless of the state of the economy, there’s zero penalty for being financially prepared!
Contrary to popular belief, the economy is actually at an all-time high. The S&P is at the highest it’s been at in 18 years! Simultaneously, interest rates are at the lowest they’ve ever been in nearly 4 years. This is making a lot of people nervous, as this usually means that there will be a coming correction to the market. However, if you stay prepared, there’s no need to worry about this. In order to do that, it’s important to look at the five money mistakes that people made during the last recession!
The Five Money Mistakes..
- Living off of credit cards. Leading up to the last major recession, a multitude of people across the country made the grave mistake of using home equity to fund their lifestyles. This was a huge mistake – when the housing market crashed, these peoples’ home equity was gone, leaving them with a mountain of debt and nothing to secure it with. In order to not be living off of credit, you must budget for 70% of your net take home pay to go towards your living experiences. Of that, your housing payment should be between 30-35%. The remaining 30% of your net take-home pay should be directed towards principal debt reduction. This is a foolproof strategy that will help protect you against living off of credit cards and other equity.
- Only depending on your earned income. By definition, “earned income” is your profession, or the thing you show up to work and do. It’s the thing that requires your time to get paid for. This may seem like a solid strategy, but the issue with this is that your earned income can dip when the economy hits a rough patch. If your earned income is your sole source of income, you’ll be more likely to land in a financial misfortune when the economy isn’t doing well. Consider adopting a side hustle or taking in money from royalties, rental properties, et cetera.
- Not diversifying your investments. If you only invest into one area, you are subject to how a rising or falling market will affect that one thing. However, if your investments are spread out over multiple things, you won’t be as impacted if one area fails. Additionally, when you invest, do not do so based on what you think the appreciation of the asset will be. Rather, try to invest in cash flow. You should be investing in a way that creates income streams that compound upon each other. In other words, the appreciation of these assets is not what you should be relying on in order to make the investment worth it,
- Not focusing on debt reduction. This is such a common financial mistake! Don’t pay off your debt only to rack it up again in an endless cycle. Rather, keep your lifestyle budget to 70% of your income and try to pay off as much debt as you can with the remaining 20%. The other 10% of your budget should go to savings. This way, in case you do fall on hard times, you will have fewer debt payments to worry about!
- Timing the market. This is a fool’s game, as the market can be extremely unpredictable. Financial storms come and go, but having a strong strategy in place is the way to weather them and come out on the other side. Professionals can give their advice and words of caution, but it’s impossible to fully predict the future. Investing consistently over time, paying off your debt, and properly managing your finances are strategies that can give you the best results.
I hope you’ve learned a thing or two from this article and that you’ve enjoyed reading it! If you’re seeking more content regarding home loan and overall financial advice, check out my social channels and keep up with the content on my blog! Additionally, if you’re looking to get a loan on the home of your dreams, shoot me a message so we can chat about your unique mortgage needs!
