Lessons from the Recession

October 5th, 2009 by Reed Allmand

We’ve all heard the saying that those who forget the past are doomed to repeat it.  An article in Investopedia.com highlights the most recent lessons from our recession.  Lisa Smith lists five basic principles that should be garnered from this financial crisis:

1.  Risk matters…but protecting what you have is just as important as trying to get more.

2.  Experts don’t know everything…blind trust is a bad idea.

3.  You can’t live on averages… if the train is about to crash…get off.

4.  You shouldn’t buy what you don’t understand…save the “set it and forget it” principle for a Ronco product.

5.  You can’t delegate your future…pay attention to your finances.

When I read this article, my first reaction was that these are common sense, no-brainer ideas, yet extremely important for anyone who has successfully completed a bankruptcy program.   For many people, filing bankruptcy is the means to surviving their own personal recession.  Many people exit bankruptcy finally feeling relief that the collection calls are gone and they can afford their life again.  Once we get past a crisis, the inclination is to lighten up.

Before and during bankruptcy, a new car wasn’t an option.  You simply had to make due with your mini van with the peeling trim.  Once the bankruptcy is over, you start paying a little more attention to the car salesman ads and the latest hooks to get you on the lot.  This is where is starts again… getting caught up in the mentality that I’ll have time to pay it out or catch up later.  Before you jump into another debt cycle, remember these basic principles and all the efforts that you made to get through bankruptcy successfully.  Risk matters… so take extra care when managing your finances.

Just because you get a juicy offer in the mail from a credit card company, it doesn’t mean you have to accept it.  Research the company first and see if what they offer really meets your needs.  Find out if this is one of the companies that engaged in abusive credit practices.  Which leads to the next mantra…don’t place blind trust in the credit card company or car dealer.  Many consumers assumed that when they followed all the self-help advice and called their creditors, that the creditor (who had pretended to be their best friend) would be there to help them.  Instead, their credit limits were slashed and their cars repoed.  Understand the financial agreements you are signing.

Don’t buy what you don’t understand.  When you walk onto a dealership and get a whiff of the “new car smell,” it’s easy to sign whatever the salesman puts in front of you.  Every document that you sign is the next step in your financial future.  Don’t delegate your new financial security by accepting what the salesman tells you the paper says.  Read it, ask questions, and understand all the terms of the agreement.  Don’t gamble that it’s something that can be worked out later.  Once you sign the dotted line, it’s final.  If it doesn’t feel right, don’t sign.    Cautious pride is the most important principle that you should carry with you into every financial transaction.  Take pride that you made it through bankruptcy, but be cautious about falling for the same traps that lead to bankruptcy.