You may have heard references to the “lost decade” on the news. This isn’t related to the “lost generation,” which is either a group of post-WWI literati, or the post-WW1 generation. Instead, it’s the first decade of this century. The 2000s, the Aughts, whatever you want to call it, it pretty much sucked financially. While people who contributed regularly to retirement did earn returns, much of it came from those contributions rather than serious growth (and it was probably wiped out by the recession.) So what do you do know that you’re facing down a new decade right back where you started ten years ago?
So, if you started this recession without an emergency fund, your first response was probably panic. If you don’t have any sort of emergency fund (and I don’t mean credit cards), then you should establish one now. Start with 2% of your income as a goal, but your real target should be at least six months of vital living expenses (not income, because hopefully you spend less than you earn.)
Once you’ve got at least a small emergency cushion, then start to increase your retirement fund. Due to my husband’s disability leave, I had to delay my plan to double my retirement withholding, but I will be doing that as soon as he returns to work. You should consider getting more aggressive with your contributions and your holdings in order to jump on the post-recession stock boom, if you haven’t already.
If you want to make up for the last decade, you should plan on being aggressive. With luck, this decade will offer better returns than the last one, because really, the total return from the decade was worse than the return for the 1930s. Take a look at the 40s and 50s, and then at the 80s and 90s. We can only hope that the 10s and 20s will be the same. So, take a look at your budget and figure how much you can afford to put in your non-retirement accounts in addition to your retirement accounts (after those are maxed out.)
If there’s one thing we did well in the 2000s, it was spend money. So, rather than make up for the decade, you need to do less than before. Establish a spending plan and learn to stick to it if you haven’t already. You don’t have to stop buying, just be thoughtful about it.
If you bought before the bubble, congratulations. Now is a great time to do maintenance you deferred during the last decade. If you bought during the bubble, then you may be tempted to let other things slide, but remember that deferred maintenance or shoddy upgrades will hurt your resale value even more, so don’t skimp, but don’t go overboard, either. If you bought during the slide or are looking now, congratulations. Buy what you can afford and make upgrades slowly and carefully. You should plan on owning the home for 7-10 years, so you’ve got plenty of time.
After your emergency fund, and your retirement, and your investments, there’s no reason not to save money in an interest-bearing account. Use that money to buy cars, take vacations, upgrade your home, and replace furniture so you don’t pay credit card interest or need to take out a loan.
Most of all, we have to hope that we avoid the stagflation of the 1970s and the economic condition in Japan after its real estate market collapsed.
What are you doing to combat the lost decade?