by Stacy Francis, CFP®, CDFA
This morning, a friend forwarded me one of those semi-spammy mass emails. I normally don’t have time for them, but hers promised inspirational quotes and I figured in this day and age, who couldn’t use some inspiration?
My favorite was the simple yet effective “leave your mistakes behind, but never the lesson”. Inevitably, it brought my thoughts to the recent financial crisis. What have we learned from the mistakes that brought us here? What wisdom can we take with us into the future that can help us make better money decisions?
These are just a few things:
- Cash is king. I have always advised my clients to keep six months worth of expenses in an easily accessible emergency account, even though such accounts typically generate minimal returns. These days, this applies to money you need for big-ticket items such as tuition expenses, a down payment for a home or a wedding as well – at least if you expect the transaction to take place within the next few years. Do not invest money you cannot afford to lose.
- Real estate prices, too, are volatile. It is still generally a good idea to buy a home you can afford, at least if you are planning to live in it. But investment properties are not necessarily dummy-proof roads to riches.
- There is a time to borrow, and a time to save. Huge balances on credit cards and elaborate financing plans should not be regular parts of the household finances. If you continuously spend more than you earn, trouble will find you.
- When calculating the right balance between stocks and bonds in your retirement portfolio, you need to factor in your job situation as well as your age. Depending on your field of business, you may expect to make more as you grow older, or less. You may be able to work until you’re seventy, or you may need a career change at forty-five. Your job situation may be shaky or steady. This, too, will affect how much risk you should and are able to take with your retirement capital.
Feeling a little wiser? We’re getting there. It’s just a harsh transition, from reckless spending to something vaguely reminiscent of . . . financial responsibility.