Finance 101 from the School of Hard KnocksSome of life’s most important lessons are those we never intended to learn.
By: Michael Pennington, Living North
Some of life’s most important lessons are those we never intended to learn. They generally don’t offer a diploma, and the “tuition,” let’s just say, comes at a very high price. Thirteen years ago, I watched in disbelief as an angry Mother Nature tore apart the lives of tens of thousands of Red River Valley residents. Words and photos have chronicled the historic Flood of 1997,but they will never fully convey the physical and emotional devastation inflicted on these communities that I witnessed.
Equally incredible has been the recovery these ravaged communities have made in 13 years. Population and economic growth in many areas now exceeds
pre-1997 levels. They have rebuilt – again – knowing full well that they risk being flooded nearly every spring. Are they crazy? Far from it – they’ve learned the expensive lessons that decades of history have taught
them. To remain and thrive, they manage the risk by employing what they’ve learned from the past to minimize their losses from future inevitable floods.
There are few left among us who remember the Great Depression, but most of us know this tragic story anecdotally and through our history books. The havoc this financial disaster wreaked upon the economies of the world was considered a once-in-a-lifetime event.
Yet despite everything we’ve learned since then about economics and finance, the recession of 2008 came perilously close to becoming our second once-in-a-lifetime depression in 80 years.
Recessions are as normal to a modern economy as spring floods are to the Red River Valley – and just as unpleasant. We’ve survived them all, and will in the future, but unfortunately, not without repeating many of
the same mistakes. Why? Despite what some may claim, economic cycles are not easily predicted, and under duress, human nature leads many to make impulsive and emotional financial decisions that they often regret later.
The current recession feels far from over for many, but most economists agree that the worst is behind us. As the murky waters of this recession begin to recede, take stock of all that is good in your life and heed the
lessons to be learned from this event. The next recession is not an “if,” but a when, and you will not see the rising waters until it’s too late. Begin building your dike now by reviewing your financial goals and crafting a plan to achieve them. And most importantly, commit to
following your plan “come hell or high water!”
Michael Pennington is an Investment Advisor for Pennington Financial Group in Duluth.