What the Riots in Greece and Bank of America Boardroom Mean to You
If you think of Greece as the home of one big family, the tough economic measures they just adopted reflect what is going on in households across America. Families are owning up to years of poor personal money practices, fixing them and moving on. The lousy economy has forced the issue.
A similar reckoning is occurring in businesses too. Bank of America just agreed to pay a staggering $8.5 billion in order to settle claims by investors who bought its time-bomb mortgage products. Now the bank can look ahead, knowing the vast bulk of its missteps have been paid for.
It's never easy to admit mistakes and change your behavior. Less than a year ago Bank of America officials were determined to fight all claims. In Greece, the austere measures have led to rioting. Yet officials in both cases are choosing to put the past behind, take their lumps no matter how painful and start building a new future. It's a wise course for individuals too.
This deep into the rough economy chances are you've already taken concrete steps to get your financial house in order. The savings rate is up, credit card debt has slowed, and millions of folks have found that simple pleasures like the park on Saturday and each other's company in the evening are good and inexpensive alternatives to the mall.
Still, a further reckoning may be in order. If you want to take the cleansing approach that Greece and Bank of America have taken, a good way to start is by focusing on what you have -- not what you had. Here are four key areas with a new normal that you must accept if you ever expect to get back on track:
- Savings The stock market is below its level of a decade ago. No one saw this coming. The new normal is that investment gains are spare and there is no guarantee that your stocks or mutual funds will ever reach the heights they hit in 2007. Bank of America is still down 80% from its peak. You have what you have. The market (and your favorite stock) does not have muscle memory. Just because a stock once hit $55 does not mean it's going to get back there. Diversify with what you have now, then ratchet up savings.
- Real estate Values have been reset. Sure, housing will rise again one day but the peak value of a few years ago is irrelevant. Your house is only worth what someone is willing to pay for it in a reasonable window of time -- not some fanciful value contemplated before the bust. If you want to move and have enough equity to sell without writing a check, do it. Put the past behind. Take your lumps and start building a future with the new normal values you'd find as a buyer. There is a lot to be said for getting on with your life.
- Jobs The unemployment rate likely will remain elevated for the next couple years. The new normal is that part-time work and work below your pay-grade is better than no job at all. Get some income and adjust your spending. You can still aspire to a great career move. Companies show modest signs of getting ready to take their feet off the hiring brake. But in the meantime take extra care of the job you have, and if you don't have a job keep busy at something to avoid a big resume gap.
- Years to retirement The lost decade for stocks has been especially tough on pre-retirees who had been planning on rising values to reach their retirement goals. Such people are now 10 or 12 years older with little to show for it. If you kept contributing to your retirement accounts through thick and thin, by now you'd likely have restored your balance and then some. But you still went a long while without investment gain, which is lost time. The new normal is that folks must work longer or save like crazy. Take your lumps now. Put away more money; get comfortable working in your later years by thinking of less stressful jobs that you'll enjoy.
Photo courtesy Flickr user endiaferon
More on MoneyWatch:
- 5 Ways You Fool Yourself into Spending too Much
- Why You Need a Budget
- What Our Dads Taught Us About Money
- 5 Ways to Become CEO of ME
Daniel J. Kadlec is an author and journalist whose work appears regularly in Time and Money magazines. He is the former editor of Time’s Generations section, which was written and edited for boomers. Kadlec came to Time from USA Today, where he was the creator and author of the daily column Street Talk, which anchored the newspaper's business coverage. He has co-written three books, including, most recently, With Purpose: Going from Success to Significance in Work and Life. He has won a New York Press Club award and a National Headliner Award for columns on the economy and investing.
Disclaimer: The copyright of this article belongs to the original author. Reposting this article is solely for the purpose of information dissemination and does not constitute any investment advice. If there is any infringement, please contact us immediately. We will make corrections or deletions as necessary. Thank you.
