5 Financial Principles for a Seismic Economy
The financial meltdown of the past three years begs for a new approach to money management and a reinvention of personal employment. The forces and broader systems that affect our economic lives are unpredictable and to large extent, not fully understood. How can average folks survive and thrive in the midst of what appears to be a sea change in our economic reality? How do we move away from a reactive ‘duck and cover’ response toward true empowerment? The 5 principles I embrace are old ones, slightly modified for the realities of an unstable job market and tightly interwoven national economies. They hearken back to other times when the future was clouded by uncertainty and life demanded a more active and nimble financial response:
An uncertain financial horizon should inspire flexibility and mobility. So often I see young people embracing debt loads when times are good only to find themselves over-leveraged and in default when times turn rough. I’m tempted to admire the optimism in assuming salaries will only increase and careers will progress without interruption, but can’t recommend it as a sound financial strategy. Reasonably expanding your lifestyle during boom times should be tempered by the ability to easily contract it during lean times. This means keeping luxuries, luxuries…avoiding the temptation to turn them into a fixed overhead expense. Debts should be kept to a manageable level — at your full income or at half your income.
The days of choosing your 401(k) funds and then letting them ride for the next decade are over. It’s essential to actively manage all assets, keeping an eye on what’s working and not being afraid to make changes based upon information and reasonable analysis. The market will probably take care of itself in the long run, but that doesn’t mean you need to take every hit because someone told you “you’re a long-term investor; don’t worry about it.” Huge spikes and deep dives in market activity should rightly warrant our attention. There’s real validity in seeking financial safe havens during protracted times of market chaos.
Learning to be satisfied with a reasonable pace of progress is the hardest lesson for most of us to learn. We’re barraged with messages that promote upsizing and upgrading everything from our cars to our closets. If only we could so confidently and precisely predict the upgrading of our income. So, relax…arguably the greatest luxury is avoiding the sales pitch and its inevitable contract and debt load. Learn to embrace a novel concept that I like to call “stay-grading.” Reconsider that ‘starter’ home — maybe it can be your ‘finisher’ home too. Learn to love that white fridge — stainless steel just shows finger prints easier.
The US Department of Labor estimates that today’s student will have an average of 10-14 jobs by age 38. Some of those positions will be left voluntarily, some through down-sizing, out-sourcing, acquisitions, and contract-terminations. With few exceptions, lifetime stable employment is a relic of a different era. Isn’t it time we diversified our income stream like we diversify our investments? The reality of the employment landscape seems to compel us toward ‘broad-sourcing’ our incomes. Perhaps it could look like this: a primary job that supplies 65% of our income supplemented by two or three secondary positions that contribute the other 35%. Our employment energies could be divided and redirected where needed. We could respond to lay-offs and furloughs with less stress; we could see which piece of our “mini-conglomerate” has the most potential for personal joy and economic growth.
Dependence is a marketing strategy. The more we allow companies to suggest a void that they charge to fill, the more we concede our independence. Reclaim skills that have been eroded by services and convenience. Once upon a time, people washed their own cars, cooked their own food and managed (more or less) to keep themselves entertained. Not every activity in life needs to have a consumer exchange attached to it. Let’s resurrect bartering. Let’s embrace the concepts of ‘free’ and, ‘I did it myself.’
All is not doom-and-gloom, but if nothing else, the past few years of economic upheaval should sound an alarm that the old ways of earn-and-spend demand a critical review. When global economies are built on shaky foundations and questionable fiscal regulation, our response must be more deliberate, more proactive and frankly — smarter. New economic conditions call for new principles and a rethinking of old habits that were better suited for a different era. Let’s challenge ourselves to pioneer a strong, responsive and fiscally healthier ideal for the decades ahead.