The Great Recession meant a lot of things to a lot of people.
For many, unfortunately, it meant some combination of job loss, extensive periods of unemployment, home foreclosure, economic hardship, a huge portfolio hit, and a whole lot of fear.
Awful stuff, no doubt. And even 4 years after the start, some are still struggling to restore their financial situation to pre-Recession levels.
Despite all of the hardship it caused (and in some ways is still causing), the world is still spinning, most of us are still here, the unemployment rate has dropped more than 2% points from its highs, the stock market is not far from pre-Recession highs, and we’re not all running around the streets of Barter Town, in bullet-proof vests, trading knives and silver bullion for gasoline and rice as many Doomsday-prophets had assured (sorry, Doomsday-preppers).
This was my first big recession as an adult who is responsible for my own finances. And I can look back now and take away some valuable life lessons to better prepare myself for certain future economic declines.
After all, you never know when the next big recession is going to hit.
Here are 5 lessons I learned.
1. If you Fall Down, Get Back Up, Quick
My wife’s employer was skittish at the first signs of economic downturn and laid off much of their workforce. As my wife had just recently started working with them, unfortunately, her job was one of the casualties.
Initial depression and disappointment was quickly and purposefully replaced by determination, drive, and a healthy dose of competitiveness to find the next job and move on with her life. That very same day we updated her LinkedIn profile, her resume, and started looking for new jobs.
This is exactly what she needed. Any time you lose a job, even when circumstances are out of your control, your confidence and feelings of self-worth are going to take a hit.
Absolutely nobody was hiring in her field, but she immediately found a well-paying part time role through a neighbor in a completely different line of work. Then, after exploring every possibility she was able to find a part-time role in her field of work after about 3 months. It wasn’t an ideal job, there was a half-hour commute, and it was part-time, but it restored a sense of normalcy and self-worth. Shortly after, she was offered full-time work.
Meanwhile, we realized that the long-term career prospects in her field were not promising and being at a desk all day had worn out its welcome. So we researched other fields of work that were more recession-proof and of interest, and she later left her job to go back to school for a nursing career. Ultimately, the layoff was a wake up call and it led to a new career opportunity that she is very excited about.
Lesson learned: A job lost is not the end of the world unless you make it so. Rebound as quickly as you can, even if it means accepting a role that does not seem ideal, or seems like a step down. Do things to keep your confidence and feel good about yourself, whether it’s volunteering, exercising, or working on challenging projects.
2. Look at your Finances Like a Rock-Solid Business Does
The very best businesses in the world prepare themselves for inevitable downturns. They:
- diversify their income stream
- stockpile a rainy day fund
- grow their income as fast as they can during good times
- keep their expenses low in bad times, but still invest wisely when opportunities arise
- are fiscally responsible in good times and bad
- keep their balance sheets clean and their debts to a minimum
As a result, they thrive when others falter. They see recessions as unique opportunities to grow their business.
Even if you did not suffer hardship during the Great Recession, you at least hopefully started taking a closer look at your finances, personal savings rate, and cash flow.
Lesson learned: The similarities between personal and corporate finance are striking, but perhaps never as apparent as in a recession. Think about your finances like a business does, so that you can prosper in good times and bad.
If good fortune has found you again, good habits should not be forgotten.
3. Fear is Not Useful. Especially when it Comes from the Fear-Mongering Media
During the height of the panic, I wanted to jump out a window.
Not because of my financial situation, but because the media was driving me insane. They were only worsening what was already a difficult situation.
Would the stock market have fallen as much as it had without everyone being glued to fear-mongering TV newscasts?
Would as many jobs have been lost?
Would stress-related disease or heart attacks have been as numerous?
No good was coming from the media. I got so sick of all the negativity and started publishing a “positive finance” series, highlighting positive economic news and stories. Unfortunately, the positive news was far and few between.
All of that fear and negativity may have resulted in Glen Beck getting a few more stellar sponsors, but it didn’t do you or I any good.
Lesson learned: As much as possible, tune out negative media. It won’t do you any good to follow it.
4. Take Emotion Out of Investing
Once again, Buffett was right. The Dow had fallen from a high of over 14,100, down to 8,500 at the time of his NY Times Op-ed. There was panic in the streets.
While he didn’t quite call the bottom of 6,600, those who had followed his timeless advice to “Be fearful when others are greedy, and be greedy when others are fearful”, would have profited handsomely, with returns of about +100% from the bottom.
The worst time to sell your investments is when everyone is panicking. And the worst time to buy investments is when everyone is rushing to get in to chase high returns.
Lesson learned: Don’t time the market on gut instincts. Rather, ignore your gut instincts, because they are usually wrong. Take out fear and excitement, think logically, avoid following the herd, and you’ll be better off than most in the long run. A good way to do that is through passive investments like ETF’s.
I, unfortunately, did not follow the Buffett rule. Lesson learned.
5. When it Comes to the Economy, Bad News Presents Opportunity
There were a lot of bad things that happened is the recession, but each presented opportunity for those the bad things happened to, or someone else.
Housing crash? A bubble was rightfully burst. This presented opportunity for first time home buyers and investors to get in to the housing market at reasonable levels.
Stock market crash? Stocks were EXTREMELY cheap, and buying on the dip presented opportunity for significant gains.
Debt problems? An opportunity to re-evaluate your lifestyle choices, sell off material possessions you don’t need, and get back to the basics.
Job loss? Maybe you found a better job, a new career, or simply got out of a job you hated. At the very least, you probably gained new appreciation for being employed. And maybe you re-invented yourself in a way that has left you happier and more confident than before.
Not everyone was in position to benefit, but the opportunities were surely there.
And hopefully the recession brought you closer to family, friends, neighbors, and others in your community.
Lesson learned: There is almost always a positive that can be found in a negative, especially when the economy is concerned.
Great Recession Discussion:
- What did you learn or gain from the Great Recession?
- Are you financially in better or worse off position now vs. the start of the recession?
- How has the Great Recession changed you?