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5 Lessons Learned from the Recession

The current recession has been a rude awakening for American spendthrifts with a carefree attitude toward their finances. Consumers who once routinely spent money they didn’t have and never saved a dime are now transitioning toward a more frugal, prudent way of life. The recession has taught consumers a painful lesson on financial preparedness, the risks of profligate spending, and the dangers of unfounded economic optimism. Read on for the five most important lessons the recession has taught Americans.

1. Don’t spend money you don’t have. Before the recession, consumers would spend with reckless abandon, completely ignoring the fact that they were spending money that didn’t actually exist. Americans quickly ended up knee-deep in debt, one of the many factors that contributed to the credit crisis. The moral of the story? If you don’t have it, don’t spend it.
2. Plan ahead. The recession-ravaged finances of the average American are proof positive that we are not economically indestructible. Bad things can, and often do, happen. Financial setbacks are inevitable; the only thing consumers can do is prepare for them by saving and living within their means.
3. Make debt repayment a top priority. Gripped with fear and uncertainty, consumers are now paying off debt faster than they have in years. However, it shouldn’t take a near economic collapse to motivate us to pay off our credit cards and other loans. High-interest debt is a financial parasite, and you should do everything in your power to break free from it. Snowball your debt, paying the highest-interest cards off first and then work your way down.
4. Don’t overextend yourself with your mortgage. If the recession has taught Americans only one thing, it’s that home values are not invincible. In fact, they can be downright unpredictable in the right economic climate. The take-home lesson here is to avoid buying more house than you can afford. Also do not stake your entire financial strategy on the hope that your home’s value will continue to appreciate—there are no guarantees.
5. Save as much as you can. Every economic vicissitude will send you into a financial tailspin unless you have a healthy rainy-day fund. Ideally, you should have six to nine months’ worth of expenses saved to pay for emergency expenses or to live off of if you ever lose your job. You might not reach this goal immediately, but start saving something. This recession wouldn’t have been nearly as devastating if Americans had healthier saving habits.