When the markets crashed in 2008 it changed a lot of people’s lives. For most, money was tight. People that were once making $100,000 a year selling luxury items were now cleaning toilets at their local McDonalds. At that point a paradigm shift started to occur in our society, and families everywhere started to pull their purse strings closed. They needed to re-evaluate their personal finances and save money. Unfortunately for them, they didn’t know anything about personal finances or being frugal. The door was left wide open for them to make mistakes when they thought they were making sound financial decisions. Luckily for us, we can use their mistakes as examples so we don’t have to make them ourselves.
Mistake 1: Using coupons they didn’t need- When the recession started to occur it became apparent that most of us needed to save money. Companies also saw this so they flooded us with coupons. It became so big that we even have TV shows about (extreme) couponing. Using a coupon is wonderful if it’s used to purchase something you really need. One dollar off a loaf of bread, I’ll take it! The problem occurs when we use coupons to purchase items that we don’t need. Spending $10 dollars on a 30 pound bag of pop rocks might sounds like a great deal, but what the heck are you going to do with a mountain of pop rocks? That example’s ridiculous, but it happens to me all the time. I’ll think about buying something because I have a coupon even though I don’t really need it. Just because I’m getting a good deal for that product doesn’t mean it’s helping my checkbook!
Mistake 2: Making decisions based on emotions- We can all get emotional when it comes to our finances, and that’s why it’s important to keep an open mind. When the economy was collapsing everyone was trying to protect themselves in any way they could. People were selling all their investments and personal belongings. Others were taking money out of their retirement funds to try and save belongings they really couldn’t afford. Whichever way they were going, a lot of those decisions were rushed. Since 2008 I’ve talked to quite a few people that made rushed decisions and almost all of them regret their actions. Take the investments for example; a lot of them would have rebounded to where they were in 2007, but when people sold them on a whim they sealed their fate of a net loss. I know hindsight is 20/20, but I remember wishing I had money to invest when the markets were crashing. I would have bought B of A. If only…
Mistake 3: Not discussing financial goals- As I mentioned above, after the financial collapse families started to cut back on their spending. From what I’ve seen, most families have one person that deals with most of their finances. That can be a very effective method for money management. If someone is more knowledgeable in personal finance it’s good to let them take the reins. The problem occurs when this person leads their family in a direction that everyone hasn’t agreed on. Having common financial goals is the key to household success, and if you never take the time to set-up these goals you’ll run into trouble. Say, hypothetically, I thought it was important to save money for a family vacation. I mean this whole recession talk has really got me down, and I just want to lie on a beach sipping margaritas. My girlfriend, on the other hand, thinks it’s really important to save money so she can be a stay at home mom. To her, nothing’s more important than spending time with our future children. If I’m the one in charge of our checkbook, but I don’t have a clear understanding of what we both want, I am more likely to take our family in the wrong direction. Once she figures out what’s going on (they always do) we will have major issues. This was a silly example, but when you plug vacation in with keeping your house and trade staying home with the children with paying off student loans it becomes very serious.
I think most of us read blogs so we can learn a thing or two. The mistakes above were just a few things I’ve noticed since the financial turmoil in 2008. Please share any mistakes you’ve noticed people making since then. If we can all share our observations we might actually be able to help someone!