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Segment Q&A: Lessons (Hopefully) Learned 10 Years after the Financial Crisis

Background:

September 15th, 2018 marked the 10 year anniversary of the bankruptcy of storied Wall Street firm Lehman Brothers which set off the chain of events that we’ve come to refer to as the Financial Crisis.

While the economy at large has mostly recovered, there is certainly no guarantee that something similar won’t happen again.

Because of that, it’s important to reflect on the lessons that we’ve (hopefully) learned since then so that we do not repeat the same mistakes and so that we’re over prepared for the next one.

Rob, some of us have short memories, or simply want to forget the financial crisis. Can you take us back to what is was like during 2008-09.

Well, September of 2008 is when things started to get real.

The bankruptcy of major Wall Street investment firm Lehman Brothers showed that the housing bubble had officially burst. That month there were a shocking 159,000 jobs lost.

That number would swell to 524,000 (!) jobs lost by December of 2008 and a total of nearly 2 million jobs lost in the last 4 months of 2008 alone!

Other incredible stats from the crisis:

  • 8.8 million jobs lost
  • 8 million homes foreclosed
  • Home prices dropped by 40% or more
  • Retirement balances dropped by 27% in 2008

From Wall Street to Main Street, we were all dramatically impacted by the financial crisis.

How did we get in the mess in the first place?

Well, to put it simply, banks started essentially giving mortgages to anyone who could fog up a mirror.

They instituted things such a “no documentation loans” where you didn’t have to provide proof of your income in order to get a mortgage.

This led to many, many people taking out more in loans than they could afford and when the overly inflated housing market started to cool off, the entire house of cards came crashing down.

When your auntie (who doesn’t know the difference between a hammer and a wrench) called you and started talking about how she was getting into “house flipping” that’s when you should have known that something was really wrong.

So what are the key takeaways that we should have learned from this?

  1. Plan for a Rainy Day

First of all I hope that we’ve learned to plan for a rainy day.

Yes, we’re all happy that the unemployment rate is low and the stock market is high, but those things were also true in 2007.

Recessions and financial setbacks can happen unexpectedly and without much warning.

Just because things seem a little better now, doesn’t mean that it’s time to spend like there’s no tomorrow.

Now is the time to reduce your debt and get your savings in order so that you’ll be in a solid position when and if the economy starts to weaken.

  1. Multiple Streams of Income

Next, I hope that we’ve learned that we all need to have multiple streams of income.

You should never be totally reliant on one source for all of your income. You could be like one off the unfortunate people who left Lehman Brothers on a Friday afternoon to enjoy their weekend, only to find out that they didn’t have a job on Monday morning.

Certainly, give it your all at your main job, but also take some time to do some freelance writing or video editing on the side, sell some items on Amazon or eBay or teach college students how to score better of their graduate school exams, etc.

Do what you have to do the reduce your reliance on your job for all of your income, because we’ve seen that when the going gets tough, the pink slips start going.

  1. Beware the latest investment “fad.”

If it sounds to good to be true, it probably is, even if it appears to work for a period of time.

Look, the fact you’re an HGTV junkie and you never miss an episode of Property Brothers doesn’t make you an expert in flipping houses.

Stay away from “investments” in things that you don’t know very much about, can’t explain and don’t have very much experience with. (ahem…Bitcoin anyone?)

Take the time to become more knowledgeable and find a mentor before you put your hard earned money to work.

 

Rob Wilson is the Chief Insight Officer at Wilson Insight and a frequent contributor to CNN, CBS, NBC and Fox.

For more important lessons on improving your finances, connect with Rob on Twitter @robwilsontv or at his website http://www.robwilson.tv

 

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