“When you ain’t got nuthin’, you got nuthin’ to lose.” ` Bob Dylan
At least, that’s what I think he said.
The Great Recession has proven that almost everyone has something to lose, even if that something is as personal as self confidence. It’s easy to sit back and opine about the heady days of 2007, when credit was generous and houses never went down in value, when unemployment was just north of four percent and taxes were low. And while some tout the last three months as the “Summer of Recovery,” our unemployed neighbors who are losing their homes would beg to differ. So would those who’s retirement portfolios have dropped over 40 percent. So would those of us re-examining our household budget.
Given that hindsight is always 20/20, we can look back and see where bubbles were and venture guesses why they grew in the first place. We can also look back and advise others about what to do and what not to do in a recession. The truth be told, the following 10 items should probably be avoided even in the best of times, but certainly in a downturn like we’re currently experiencing.
10 Things You Should Never Do In A Recession
1. DON’T take your job for granted
With real unemployment hovering above 16 percent (that’s one in SIX people), having a job right now is a blessing – even if you don’t particularly care for it. If your job is putting food on the table, allowing your to keep up with your mortgage and other financial obligations, be thankful and give it your all. Hundreds of thousands of unemployed folks would love to trade places with you.
2. DON’T take on additional consumer debt
In a recession, you should avoid consumer debt like the plague. Student loans? Maybe. Business loans? Possibly. Mortgage loans. Probably. Consumer debt and loans? Absolutely not.
3. DON’T co-sign a loan
In a depressed economy, co-signing a loan for someone is a recipe for eventual disaster. The reason someone needs a co-signer is that the lending institution believes that they won’t pay. If they don’t, the loan falls on your shoulders. Are you prepared for that?
4. DON’T get an adjustable rate mortgage
With the uncertainty surrounding everything from health care insurance premiums to how much your taxes will go up, getting an ARM loan isn’t very smart. An ARM puts the uncertainty on your back rather than the banks. Besides, with 30 year fixed rate mortgages at historic lows, it makes no sense to NOT lock in a historically low rate.
5. DON’T live beyond your means
Living within your means is THE mark of maturity. Learning to say no to today’s current desires with an eye on the future means evaluating what you think you want today with what you know you’ll really want in the future.
6. DON’T plunge into risky investments
I know all the investment gurus are fond of quoting Warren Buffett’s line – “ Be greedy when others are fearful and fearful when others are greedy” – but you and I don’t have the means to do the research he does, nor do we have the time and experience to invest like him. Go back and re-read How A Second Grader Beats Wall Street, simplify your investments and sleep better at night.
7. DON’T ignore your emergency fund
That emergency fund could very well be your lifeline should something happen with your job. Don’t ignore its importance and use the excess money from living below your means to fatten it up to about six or more months of living expenses.
8. DON’T have a single income source
In a recession, knowing how to make extra money can be the difference between thriving and barely surviving. Just a few hundred dollars extra per month can help you jettison debt, buy some groceries, meet your mortgage payment, or pay your medical bills.
9. DON’T buy a new car
If you need one, a used car is okay, but carefully evaluate your needs and do your best to remove the emotion from it. If your life was a business and you were the new CEO, would you authorize a new car? If you already jumped on a new car and you’re looking to get out of your lease, check out How To Get Out Of A Car Lease.
10. DON’T lapse your insurance
I’ve seen too many people get skewered by lapsing their insurance. It seems like some unforeseen conspiracy, but lapsing an insurance policy appears to be a sure way to guarantee a loss. Mostly I’ve seen this on car insurance, but health insurance as well as life insurance can also come into play.
What other things should someone NEVER do in a recession?
Photo by taberandrew