The Top 3 Personal Finance Lessons from 2008

2008 was a year for the history books in so many ways. They say that those who do not remember history are doomed to repeat it. Here are three critical financial lessons to take away from 2008

• Lesson #1: CASH IS KING. Financial advisors have waxed poetically about the importance of emergency funds for ages... to deaf ears. 2008 was a year in which the rationale for this advice became crystal clear. According to the American Payroll Association, roughly 70% of Americans live paycheck-to-paycheck. When the credit freeze took hold and the layoffs began, Americans learned the hard way abut the importance of having a financial safety cushion. Your goal is to have 3-6 months of essential living expenses tucked away in an FDIC insured savings account, a money market fund/account or in CDs. Three months if you are part of a 2 income household and six months if you are part of a 1 income household or have very volatile income streamsnn • Lesson #2: WATCH OUT FOR THE JONSES (and the Zeta-Joneses & perhaps even the sweet Jonas Brothers). Personal finance is a subject that, like parenting, we are all expected to just "pick up" along the way. Unlike parenting, however, there is not a lot of societal support for admitting lack of knowledge in this area. As a result, people have tended to look to their neighbors - and even to movie and music stars - to see what is "right and normal" in terms of spending and lifestyle. This might have worked back in the 1950s where credit was hard to come by so you could only spend what you have. But armed with modern day credit cards, we Americans had a financial bazooka in our hands. In 2008 we all learned that if you spend more than you make in an attempt to keep up with the Joneses (and the Zeta-Joneses & Jonas Brothers), you will end up in a financial black hole.

• Lesson #3: IF IT SOUNDS TOO GOOD TO BE TRUE, IT LIKELY IS. Action rate securities, Bernie Madoff, need we say more? There are no quick wins. If you want to make extra returns (ARS) you will have to take on extra risk. If a portfolio of stocks is generating consistently steady returns in a volatile market (Bernie Madoff), take a closer look. That's not so far off from being sold a piece of property in a town where it never rains and the sun shines every single day. Possible, yes. Likely, no. What we've learned in 2008 is that if it sounds too good to be true, it likely is.

If getting financially fit is a top priority for you in 2008, these are three valuable lessons that can help get you on the right path. Yes, you can become financially savvy!