Throughout this recession, I’ve gained clarity and confirmation that the financial information I’ve shared with readers and clients over the years will help avoid setbacks and ultimately lead to financial prosperity.
Even if you’ve managed to stay gainfully employed, you’ve been affected by this economy to some degree. For many of us, our cash-flow has been negatively affected by reduced income due to low sales, salaries and hours being cut, bonuses and overtime being eliminated and/or merit raises and promotions being deferred. If you’ve managed to keep your cash flow moving in the right direction, look at your saving and investment portfolio. With the huge losses in the stock market, most of us are poorer today than we were a few years ago.
When going through trying times, it’s important that we grow through the experience, learn lessons and avoid similar circumstances in the future. Below, I’d like to share ideas I’ve shared in the past that were confirmed to be true during this recessionary economy.
Job Security—There’s no such thing as job security! We live in an era where you’re lucky to have worked for the same company for three or more years. Both employer and employee loyalty have waivered in recent years. The thing to seek today is “income security”. Income security lies in talent, skills, and know-how that are both marketable and transferrable. One lesson that should have been learned, particularly in regions that were heavily dependent on the steel industry, is that blue-collar type jobs lack both marketability and transferability. Blue-collar type jobs are generally good paying labor-intensive jobs. If you’re fortunate enough to work until retirement as a laborer—great! The problem arrives if your job opportunity is cut short because of industry trends or the economy negatively affecting the industry’s viability. We’ve witnessed entire cities take a turn for the worse when the Steel Mills collapsed 30-plus years ago. We’re seeing evidence of this same trend again in the Automotive Industry. Workers from these industries, primarily laborers, have a hard time replacing the income they’ve earned because the skill set they acquired is not “marketable and transferrable.” In contrast employees who’ve worked on Wall Street, or in other white-collar environments have had an easier time landing jobs with similar pay because their skill set is both transferrable and marketable.
Housing—Get your financial house in order first, and then seek homeownership. Mortgage Payment default and foreclosure is at an all time high. People are learning first hand that the word homeownership is a misnomer. If you become victim of a financial hardship making it hard for you to pay the mortgage, you’re brought face to face with the reality of who truly hold the keys to the house you live in. I’ve said it time and time again: Before you seek homeownership, you should be debt free, have money in the bank for emergencies and have a respectable down payment. I’m reminded of an email I recently received from a client. She earns about $70,000 per year. She said the bank said she was preapproved for a $300,000 mortgage. She thought the bank was crazy. I advised her that given her income and financial goals, she should stay in the $150,000 range. She may not get the biggest house on the block, but she’ll get a nice house that she can afford comfortably while pursuing other goals.
Credit—The byproduct of credit is debt. Debt is hazardous to your wealth. Debt impedes your cash flow and reduces your net worth. Credit has inflated the cost of consumer goods, housing, education, medical expenses and everything imaginable. People, government, and corporations were using credit as a supplement to their income. As a result, when the credit market froze, the economy collapsed, people’s homes went into foreclosure, companies shut down and local, state and federal government financial woes were exposed. There’s a saying that “you use credit wisely”. My position has always been “use credit only when absolutely necessary”.
Saving—Financial stability and financial prosperity is built on the foundation of saving. Prior to the recession the typical person saved less than 2-cents out of every dollar earned. If you fail to develop good saving habits you’re doomed to financial frustration. One day we’ll all experience a financial hardship of some kind. One day our children will go to college. One day we’ll retire. If we fail to have adequate savings to provide for us during these times, we’re forced to use credit cards for emergencies, student loans for education, and reverse mortgages during retirement. We go through our entire life wondering why the little man can’t get ahead. The little man neglected to save.
Government bailout—If you want to get ahead financially, you don’t want to depend on the government. Financial help from the government isn’t a something for nothing proposition unless you’re classified as needy—poor. Even then, government aide amounts to “small change”. We watched the entire economy collapse in New Orleans during Hurricane Katrina.
How did the government help? They provided small federal grants and low interest rate loans—DEBT. The biggest help came in the form of tax relief. They relaxed the tax guidelines by reducing the tax rate and waiving certain tax related penalties for people affected by Hurricane Katrina. For example, people were able to access money from their retirement accounts early without penalty. Allowing one to take money set aside to avoid a future crisis to solve a current crisis isn’t exactly what you’ll call a bail out.
In the end, your financial security will come from YOU working hard, living below your means, saving for future goals and making good financial decisions.
(Mortgage and Money Coach Damon Carr is owner of ACE Financial. Damon can be reached at 412-856-1183)