What 2008 taught us not to do with our money

Where were you when the economy lost $ 1.1 billion? The financial crisis of 2008 took place ten years ago. Whether you are one of those who lost their jobs or their financial stability, we have all learned some important lessons from the Great Recession, some of which are bitter.

Fortunately, over the past decade, we have recovered many of the 8.7 million jobs lost. Today, the unemployment rate is only 3.9%, compared to 10% in 2009. Many of us have improved our savings habits, raising the overall personal savings rate to 6.8%. against a pre-collision rate of 3.4%. the Federal Reserve Bank of St. Louis.

It is tempting to let better times erase the bad ones from our memories. But there are some important things to consider in 2008 that we should do our best in the long run. Here are three financial gestures that the Great Recession taught us to avoid almost always.

Lesson 1: Do not always borrow the maximum amount approved by the bank

In the years leading up to the Great Recession, it seemed like everyone had to own real estate, whether it was a personal residence, an investment property, or both. Jocelyn Wright, an assistant professor at the American College of Financial Services, explains that many homeowners have liquidated their homes and their money because of undocumented loans (loans not requiring proof of income), appreciations aggressive and 100% financing. Then, when the housing bubble burst, they quickly found themselves under water, in homes of a lower value than they had to.

To make matters worse, many people have borrowed to buy several houses, some of them intending to "return" them or buy and sell a house in a year. In some areas of Florida and Las Vegas, nearly one in five homes was "returned," according to Samuel Miller, investment strategist at SEIA. When the crisis hit, many homes lost more than 50% of their value and lenders were excluded from millions of families. "The American dream has become an American nightmare," says Wright.

If you're thinking of buying a home, think carefully before borrowing the maximum amount the bank approves, says Wright. Make sure to consider all other costs associated with home ownership, such as property taxes, insurance and utilities, and consider not spending more than 30% of your income on expenses. of housing.

"Above all, live according to your means. Your first home is probably not your home forever, so be sure not to spend too much. Acknowledge that home ownership is not for everyone depending on your current situation. It may be wise to wait until you are in a better financial position before doing what will probably be your biggest purchase, "says Wright.

Lesson 2: Do not fall into the trap of instant gratification

Before the crash, credit was too easy to obtain, from credit cards to mortgages. "We let the delayed gratification fly out the window. If we wanted something and did not have the money, we just bought it on credit, "says Wright. "We want to live like the stars we follow on Instagram, or as our former classmate we see on Facebook, but seem to forget the hard work and sacrifices required."

It's too easy to forget that what you borrow must be repaid. Even a decade after the recession, many people are still rebuilding their credit, says Wright. Some have faced significant debts during the accident and have not been able to put money into emergency funds, contribute to retirement accounts or save for college studies of their own. children, explains Wright. "In extreme situations, it may have cost people a new job because employers often check the credit of potential employees. Inadequate credit can have a personal impact, including depression, isolation and stress in our relationships. "

In a post-recession world, Wright hopes people are better equipped to distinguish needs from wants. "Remember, retailers are separating you from your money," she says. "The biggest sale of the year takes place every two months or so."

Lesson 3: Do not let market fluctuations make you do something you regret

Many pre-recession investors have not bothered to look at their portfolios until markets have already been hit. They then panicked, sold and missed the market rebound in 2009 and beyond, describes Paul Gamble, CEO of the 55IP investment strategy engine.

"Selling panic, as a result of what others are doing and not looking at the long-term goals of the portfolio, are just some of the behavioral hurdles that investors must tackle if they are to succeed," advises Gamble.

Savvy investors must have a plan that allows them to stay in the market and overcome cycles. "Whether you're managing your own investments or having a financial advisor – highly desirable over the next 10 years – take a fresh look at your portfolio," says Gamble. Your advisor can help you develop a target asset mix tailored to your needs, based on your risk preferences and financial goals. Thus, you are always diverse and ready to face the next storm.

Kathryn Tuggle contributed to this report.

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