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The 2007-‘09 housing market collapse sent our economy into a tail-spin. People lost jobs, companies went out of business, and many nest eggs got cracked. CNN reported that from 2007-’09 American households lost a net of $16.40 Trillion (With a ’T’), or an average of 25% of a family’s net worth.
The effects were terrible and wide-reaching. Although the stock market did make a more-than-full recovery within the next few years, many were still left behind. People were unemployed, under-employed, or just terrified to invest again. So, although the economy was ‘recovering,’ many individuals didn’t (and still don’t) see or feel those improvements.
Personally, by mid-2007 we had saved close to $30,000 for a down payment on our house. In ’09 that got cut to about $15,000. We were young and invested aggressively so the crash hit us HARD (50% hard…).
After gradually dipping a toe at-a-time back into the investment pool, we were able to recoup our savings to buy our home. We were just delayed 6 years.
We were lucky
In 2009 I was 23 years old. This meant 2 great things for our family:
1) We were young enough that most of our income producing years were in front of us (knocking on wood profusely while writing this). We still had time to invest and take advantage of the all powerful compound interest.
2) We got an education via the school of hard knocks without it breaking our backs.
Many weren’t as lucky
I couldn’t imagine being close to retirement and losing 25-50% of my net worth. This crash made that nightmare a reality for many. Retirements either got pushed back a long ways or pared down to the point that what you had planned to be your lifestyle may now just be a dream.
A job loss for me would’ve been bad, but wouldn’t compare to a parent trying to provide for their family. Clara wasn’t in the picture yet and we didn’t have a great deal of debt to worry about.
The crash forced us and many others to adapt to the changing environment
Because of the Great Recession many families changed their investment strategy, job situation, feelings on retirement, etc… You buying the point that it was terrible yet? OK, good. Let me tell you why the crash could’ve been the best financial moment of our lives.
That education I referenced above was different than anything I had read in a book. We lived it. Every dollar mattered and every decision had to be evaluated for relevance and importance. The recession forced us to go lean and eliminate unnecessary spending – it wasn’t a conscious choice, there just wasn’t money enough to do everything. Big parts of every month felt like a spending freeze.
That wasn’t a ton of fun and needless to say we didn’t want to feel powerless to money.
We needed to prepare. I’m no futurist and I can’t predict what the next crash will be or when it will come, I just assume it’s on the way at some point. I wouldn’t call this pessimistic, just being financially prudent. Because of this, we wanted to learn how to live a lifestyle that was insulated against the next potential recession. This way we’re either prepared when it happens or thrilled when it doesn’t.
The economic crash was real and it was brutal. It can be easy sometimes to want to move on and forget one of the darkest financial times in recent history, but if history has taught us anything – it’s that we can’t afford to make the same mistakes twice.
Over the course of the next few weeks our financial posts will outline the strategies we use to work toward this goal – our personal finances being protected from the ever-changing economy around us. I’m calling these posts ‘The financial pillars for us millennials.’ (I just found out Monica and I are considered millennials. At first I wasn’t thrilled but now I’m trying to own it… Bear with me).
Fear not – we will still have our usual combination of fitness and family posts as well, but when it’s time for finances we’ll be outlining our financial pillars. So stay tuned, tell your friends, and let us know your thoughts about the posts to come. I want to hear if you agree, disagree, or live in an isolated society that doesn’t use money – either way I’m interested. I hope you are too!