Even if you’ve managed to remain gainfully employed, we’ve all been affected by this recessionary economy to some degree. For many of us, our cash-flow has been negatively affected due to reduction in income because of low sales, salaries and hours being cut, bonuses and overtime being eliminated and/or merit raises and promotions being deferred to a later date. If you’ve been fortunate enough to keep your cash-flow moving in the right direction, take a close look at your saving and investment portfolio. You’ll agree that because of the huge losses in the stock market most of us are poorer today than we were a couple of years ago.
Whenever we go through trying times of any kind, it’s important that we grow through the experience and learn valuable lessons to avoid similar unwelcoming 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 regard for 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—meaning you can adapt and apply your skill in a variety of ways to earn money. One lesson that should have been learned particularly in regions that was 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 witness entire cities take a turn for the worst when the Steel Mills collapsed 30-plus years ago. We’ve seeing evidence of this trend again as the Automotive Industry shut down many of its manufacturing plants. Workers from these industries who’ve work primarily as a laborer have had a hard time replacing the income they’ve earned in their former career because the skill set they acquired was not “marketable and transferrable.” In contrast employees who’ve worked on Wall Street in a white collar environment have 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. Lastly, the mortgage payment should not exceed 30 percent of your take home pay. I’m reminded of an email I recently got 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 based on her income and other financial goals to 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 financial 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 the owner of ACE Financial. Damon can be reached at 412-216-1013)