The Secret of Dealing with the Financial Crisis

More often than not, our view of (rather than the situation itself) dictate our state of mind. Some people would still be happy even if the world came crashing down. For others, a minor setback would spark off a downward spiral of deeper sadness. New circumstances are thrown at us day in and day out. We can either make the best of it or make it worst. It is up to us.

The Danger of the Trusted News

Lately, we hear lots of stuff over the news:

We are in the worst economic environment in decades

Everyone is losing jobs. Look at that employment number at 7.2%.

All banks are failing, what should we do?

The unemployment number is climbing and it’s never good when this happens, but the unemployment number was at 5.8% in 2005 (Bureau of Labor Stats). Putting it into context, this means that less than 2 people were laid off for every 200 people we know on average.

Is it worst than it was in 2005? Absolutely. Is it really Armageddon? Hardly.

Our Expectation is Sometimes Just Too High

What about our net worth that came crashing down?

Whether it’s our stock holdings, our house value or our spending power, this chart pretty much sums it all up. I bet a few years ago when your house or stock went to crazy highs (somewhere around the red line), you were extremely happy.

The value of your asset went down rapidly the past few months. So did mine. In fact, if this chart illustrates the value of the asset, it went down 50% off its highs. It hurts to see it but other than our ego, did it change things that much? Going back to our example, isn’t it just back to the value it was a few years ago? The exact same level when we were celebrating?

The Real Danger

Some of us got into trouble because of how we handled our new found wealth. As our asset value rose, we began to increase our standard of living. Each time our stocks went up, we poured in more material to build another step. Now that the new money has stopped, so did the ability to continue building. For some, it has gotten so bad that their standard of living fell off a cliff as their money supply dried up.

For those that lived life just the same, what really changed?

What is Your View?

There are certainly many people who are in trouble now but they are just the minority. Unfortunately, most of us are spooked by the reporting on those suffering. We are afraid because of the over-exaggerated news articles; we are frighten by what could (but is unlikely) to happen and we are worried that the sky is really falling.

But is it that bad? Do you really have to be afraid and how likely is the worst going to happen?

Answer those questions truthfully and perhaps the rest of you day will be much brighter.

Have a Great One.