Enjoying the holiday weekend and pulled something out of the vault originally written back in August of 2015 for my regular job in personal finance. I think it is relevant and satisfies the blog mission. Enjoy Memorial Day, remember those who served and thank them!
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As a dual U.S.-Greek citizen with family in Greece who I visit almost every year, I think I have a unique perspective on the latest news coming from there. During my recent visit, I saw the long ATM lines first-hand after the banks were closed and severe capital controls (still in place) were instituted.
What can the fate of Greece teach us about personal finance? Here are some important lessons:
Don’t spend more than you can afford. This is Personal Finance 101, the golden rule to follow if you want to avoid bankruptcy. Greece must first stop producing primary deficits so it can then begin reducing its mountain of debt. Everyone knows at some point there will be more debt relief in some way or form. At the same time, sometimes we need to take steps to improve our marketable skills, whether through investing in an advanced degree or in specialized training, so we can compete better in the globalized economy. And Greece could sure use some growth-inducing investments to jumpstart its economy and spark job growth. It is not an easy balancing act.
Avoid debt. This seems obvious now. But for several decades, more loans, debt servicing and debt rollover were an afterthought in Greece until the debt load became so huge no one was willing to lend to them anymore. Greece’s coming third bailout (Update: There was a fourth one in May 2016 and will likely be more!) after six years of depression and huge unemployment should serve as a warning that it is better to avoid debt, especially credit-card debt with its highly punitive interest rates. Aim to live debt-free and pay off the mortgage before you retire and you won’t go wrong. In my career, no client ever said they wished they had not paid off the mortgage early.
Execute the plan. In financial planning, we try to come up with a sensible plan to achieve each client’s cherished goals. But the plan does no one any good unless it is implemented. As we do with investment portfolios, we review them at regular intervals and rebalance as necessary to adhere to the agreed asset allocation plan. It is a disciplined way to “buy low and sell high.” Greeks pass laws but have a huge problem implementing them. Without implementation, plans (or laws) are useless. Procrastinating is not implementing.
Always have a Plan B. It is fairly evident now that the new Greek government never had a credible Plan B in the negotiations with their creditors. As a result, they were forced to accept what is commonly accepted as a humiliating deal for yet another bailout. In financial planning, true financial independence means having good options available to us at critical life moments. The Greeks were left to choose between the worse and catastrophic options as the bad and very bad options were no longer available.
Do not burn bridges. The Greek negotiating strategy was disastrous. They managed to alienate every single member of the eurozone while eventually asking them for another multi billion euro bailout. It is foolish to alienate your co-workers. So be nice to people who will be evaluating your performance whether you are interested in that promotion within the company or an interview with another company.
Actions have consequences. And so do votes. At the end of the day, Greek voters elected their leaders to govern. We were in Greece when the decision to close the banks was announced. I drove my 13-year-old daughter to the main bank branch in my hometown and told her, “This is what happens when a country is not governed well; bad governance has consequences.” And so do actions you take with your money. If you pile up credit-card debt, fail to participate in your company’s retirement plan or contribute less than enough to get the full matching funds, or treat your 401(k) plan and home-equity loan as piggy banks to indulge on the latest electronic gadgets or exotic vacations, you will face consequences at some point in the future. Take positive actions today.
Change is hard, but necessary. When something is not working in your personal financial situation, it is best to take immediate corrective action because delaying such action will make the effects of the eventual change even more dramatic and painful. For example, if you have a problem overspending on your credit cards, it is perhaps best to cut them up; if your job is damaging to your health you may want to find another one. But Greeks are finding it extremely difficult to change their ways. No real reforms have taken place yet. The third bailout term is still full of higher taxes and no spending cuts in the bloated state sector. At the end of the day, you are primarily responsible for your own destiny. (Update: The fourth bailout in May 2016 makes prior higher taxes and reductions in wages/pensions look like childs’ play! Amazingly, there have been virtually no firings in the state sector still, the current governments protect their own voting blocs! #thehorrors),
Brings to mind “the beatings will continue until morale improves”. You can replace morale with ANY reforms as there haven’t been any!
And I leave you with this…
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