It's unclear whether the economy has hit bottom or not. Investment markets are moving up. Jobless rates didn't get any worse. "Cash for clunkers" has given the auto industry a real boost. And stimulus funds are slowly making their way into the real world. So, at the risk of tempting fate, it's probably safe to venture outdoors once more. The sky will not be falling. Life as we know it will not be ending. There will be a World Series in the fall, and college stadiums will be jammed with fans.
Before moving on to better times, however, let's think a bit about how we've responded to the big problems that began emerging in 2006 and 2007. What are some of the clear money lessons we've learned? Almost by definition, these lessons seem very obvious today. But our children and grandchildren will forget many of them, just as we forgot the hard-knocks lessons of our parents and grandparents. Here's some starter advice:
[See The Baby Boomer Legacy.]
The experts are often wrong. Don't forget that our current problems were predicted by very few people and that the "smart money" spent a lot more time protecting itself than helping anyone else. All of the kind words from banks, brokerages and real estate companies didn't amount to much when crunch time arrived. Many years will pass before our trust in financial institutions and leaders is restored. Never accept what you hear at face value—ask questions, do your homework, and make sure that your interests are protected.
Budgeting is cool. I spend a lot less money each month than I did two years ago, and most days I feel that the quality of my life has improved. I owe much of the credit to the hour or so I spend each month with our household budget. I don't spend much cash or write many checks. I charge as much as I can on a credit card that provides rebates, and I pay off the entire balance every month. I pay nearly all of my bills through online banking and download them into a spreadsheet. As I inch closer to my own retirement, my downsized spending profile is turning out to be a great adjustment. Even if the economy and stock market soar for years, I'm never giving up that spreadsheet.
Everything's negotiable. Tough times make for tough shoppers, and bargaining for a better deal is becoming part of our DNA. Retail pricing is disappearing in a world of online discount stores and aggressive bloggers eager to share details of their latest bargain finds. A few vendors such as Apple can still get away with premium prices linked to consumer value perceptions. But for most products, it's a cost-plus world. Even the opaque pricing of electricians, plumbers and other home-repair providers is under assault from the online information explosion. The recession may have forced us to become more price conscious. Technology will make sure we never go back.
Actively manage your investment accounts. See what happens when you put your money into an investment account and forget about it. Repeat after me: Never be a passive investor, never be a passive investor, never be a passive investor, never—well, you get the idea. Look at your retirement accounts monthly, and consider rebalancing them quarterly. If transaction fees make rebalancing unduly expensive, consider shifting your accounts into holdings that don't penalize you for doing the right thing.
Don't bank on housing wealth. We're all convinced we'll never make this mistake again, but just wait. Even a few years of solid increases in home values could bring on mass amnesia. So, while the memories and lessons are still vivid, make sure your retirement plans aren't dependent on an appreciating piece of real estate. Housing gains should be viewed as a cushion, not a fundamental requirement for sufficient retirement income.
Stay healthy, stay solvent. People who get regular exercise are healthier—mentally as well as physically—than people who don't. They live longer. They're happier. Their brains even work better. Exercise need not cost you a penny, whereas poor health is very expensive. If a serious recession has any silver lining, it's the realization it brings that your quality of life is largely up to you.