Two Lessons From the Banking Crisis

Two lessons can be learned from the current banking crisis. And remember, the odds of you getting a personal bailout? Pretty slim.

Lesson One: Don’t Be Greedy

The banks became very greedy. They rode the housing boom all the way up, and all the way (are we all the way yet?) back down — and then some. They started lending money to people that couldn’t afford the loan. The banks just wanted a piece of the action.

The same thing can happen with us. We see “everyone else” around us doing something (freshening up the landscaping, buying a new big screen TV, driving around in a new car, investing in real estate, etc.) and we automatically thing we should be doing it as well regardless of our gut instinct, or our personal situation, goals…

It’s so HARD in the moment to be able to withstand the pressure though! Operating with a written budget helps mitigate that pressure by presenting you with a much needed reality check when unrealistic things start looking a bit too enticing. Trust your budget and your monthly budget meeting, where your true values and goals present themselves.

Lesson Two: Keep Some Cash on Hand

Dave Ramsey said it best (though he was writing specifically about small businesses surviving):

When you have no cash, you freakin’ go broke. You must keep some cash on hand, no matter what kind of business you have. Give yourself some wiggle room where you can take a hit and still be standing.

In your personal finances this is key! Your one-month buffer is your first step, where you’re given both a psychological boost and a real cushion. Once your buffer is saved, begin attacking your debt so you can free up those required minimum payments and increase your monthly cash flow. With the debt gone, start socking away some money for your life’s emergencies.

Having some cushion will enable you to be in the right state of mind when disaster strikes — you’ll then be able to make the right decision, instead of one based on panic and sheep instincts.