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When the economy went into a tailspin in 2008, it wasn't just Wall Street that felt the impact. Millions of workers lost jobs, and retirement plans took a big hit.
Today's economic uncertainty has raised new worries for many people. Revisiting the following lessons learned during the Great Recession can help you lower your financial stress and possibly make your paycheck stretch a bit further.
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1. Debt can be dangerous
The 2008 financial crisis underscored how excessive debt can destabilize households. Many people who saw their incomes fall quickly ended up losing their homes to foreclosure.
High levels of debt can limit your financial flexibility, making it harder to navigate economic downturns. Keeping your debt at manageable levels can go a long way to promoting financial resilience.
2. An emergency fund is essential
Job losses and a plunging stock market left many people financially vulnerable during the Great Recession. Such turmoil highlighted the importance of having a financial safety net in place.
An emergency fund offers a simple way to cover expenses when a crisis strikes. Try to build up a fund large enough to cover expenses for three to six months. Doing so should provide a buffer during periods of financial hardship.
3. Buying secondhand items can save you money
During economic downturns, frugality becomes essential. Opting for secondhand items can help you save money on things such as clothing, furniture, and electronics.
This practice not only stretches your budget but also keeps items out of landfills, which is good for the planet.
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Credit card debt is suffocating. It constantly weighs on your mind and controls every choice you make. You can end up emotionally and even physically drained from it. And even though you make regular payments, it feels like you can never make any progress because of the interest.
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4. Real estate isn't always a safe bet
For decades, Americans viewed their homes as one of the safest investments imaginable. But the housing crash of the Great Recession revealed that real estate isn't always as safe as everyone thinks.
The lesson is clear: Before buying a home, you must assess the risks rather than assuming the property will appreciate in value forever.
5. Markets usually recover over the long haul
Market downturns — like the deep stock market crash during the Great Recession — can be unsettling. However, history shows that markets tend to recover over time.
Keep this in mind and remain patient: There are no guarantees, but there is a good chance you will see your portfolio rebound eventually.
Keeping long-term goals in mind can help protect you against the fear that short-term market volatility often creates.
6. Side hustles offer additional protection
The Great Recession underscored the vulnerability of relying solely on just one income source.
Diversifying your income streams through a side hustle or part-time job helps you earn extra money that can provide some extra financial cushioning during economic downturns. This can improve your financial stability.
7. Adjustable-rate mortgages can be risky
The 2008 housing crisis highlighted the risks associated with adjustable-rate mortgages. Many homeowners faced payment shocks as their interest rate reset higher, which led to unaffordable monthly payments and widespread foreclosures.
ARMs can be a good option for many homebuyers, but they also come with risks. Consider the pros and cons before choosing an ARM.
8. Simple pleasures can be priceless
During the Great Recession, many discovered that happiness doesn't require extravagant spending. Engaging in cost-free or low-cost activities such as family game nights, nature walks, or home-cooked meals can provide opportunities for fun and connection.
You don't have to spend a bunch of money to have a good time. Fulfillment often comes from free experiences and spending time with those you love.
9. 'Too big to fail' isn't foolproof
The collapse of major financial institutions such as Lehman Brothers during the Great Recession demonstrated that even large, seemingly stable companies can fail.
This truth challenged the notion that huge institutions are always secure, and reminds us that nothing is a sure bet.
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10. Repairing and maintaining items can save you cash
During the Great Recession, many individuals turned to DIY repairs to save money. Fixing appliances and mending clothes can significantly reduce expenses and make your things last longer.
Anyone who learned this lesson during the financial crisis should be better prepared if today's economic bumps in the road turn into something worse.
11. Planning ahead helps you to mitigate future crises
The Great Recession taught us the importance of proactively assessing vulnerabilities and addressing them. It is much easier to do this before a crisis hits than to scramble to get on top of things after the economy goes south.
For instance, getting a handle on your debt or increasing your savings now can make a huge difference later. It's all about early preparation.
12. Financial products can trip you up if you don't understand them
The 2008 financial crisis highlighted the dangers of using complex financial instruments. Many investors and institutions suffered significant losses due to investments in mortgage-backed securities and derivatives they didn't fully comprehend.
Before investing, make sure you understand exactly what you are getting into.
13. Overextending during economic booms can haunt you during busts
Periods of economic growth can lead all of us to become overconfident about the future. That can cause us to engage in excessive spending.
Prior to the 2008 crisis, many individuals and businesses took on more debt than they could manage because they assumed prosperity would continue. Later, they learned the painful lesson that the future isn't always as bright as we anticipate it will be.
Don't assume that things will continue to stay good just because they are good now. Maintain sound financial habits and continue to live below your means, even in the good times.
Bottom line
The Great Recession revealed just how fragile our financial foundation can be. It also underscored why sound habits such as saving, budgeting, and staying financially flexible can pay off when times get tough.
The takeaways from that period aren't just history lessons: They're practical reminders that can help you eliminate some money stress in today's uncertain economy.
More from FinanceBuzz:
- 7 things to do if you’re barely scraping by financially.
- Find out if you're overpaying for car insurance in just a few clicks.
- Make these 7 savvy moves when you have $1,000 in the bank.
- 10 brilliant ways to build wealth after 40.
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