A recent CNBC article noted that, “The financial crisis cost the U.S. economy $6 trillion to $14 trillion-and possibly twice that-along with untold costs from “special treatment” that too-big-to-fail banks received, according to an explosive new analysis from the Dallas Federal Reserve.” It goes on to say, “Broken down, that translates to $50,000 to $120,000 for every U.S. household “or the equivalent of 40 to 90 percent of one year’s economic output,” the paper said.”
Our family has paid our fair share of this amount in several ways, and we’re struggling to recover financially due to the lasting repercussions of the financial crisis.
Housing market collapse
We had a lot of equity sucked out of our home during the housing market bubble. We had purchased our home for nearly $300,000 and ended up selling for about $230,000. After closing costs – which included a $3,500 buyer credit toward closing costs – we lost almost $100,000 on the deal.
This was the largest chunk of our share of the $14 trillion dollar crisis cost. However, we didn’t let it break us. Since we had put a large downpayment toward our home initially and made extra payments on our mortgage while we were there, we were still able to salvage some equity. Therefore, we downsized our living situation, choosing to purchase a much smaller condo for about half the price of our previous home. This allowed us to cut our home-related costs from an average of about $2,300 a month to closer $800.
Lost interest paired with inflation
Before the financial crisis, we were getting between 3 to 4 percent on our money in a high-interest savings account. I know, it’s hard to believe now and it seems like ages ago, but back then, it didn’t seem like all that big of a deal.
Those days are gone though. We now earn virtually nothing on the little emergency savings we have left. I think our savings earned us about $2 in interest last year.
To compensate for lack of interest on savings, we have learned to cut costs instead. We do this largely by shopping resale. By going resale before retail, we’re able to cut certain aspects of our budget significantly. When it comes to clothing especially, by shopping local resale shops and garage sales, we keep our annual clothing budget for a family of four close to $300 to $400. We also save on things like books, DVDs, video games, home goods, and even furniture in this way. The savings in this category alone helps us recoup more than what we would have earned on savings were rates higher.
Combating these crisis costs
So even though we were hit hard by the financial crisis, and have paid our fair share, we’re working hard to recover and make up for these losses. I’ve already mentioned how downsizing and shopping resale have helped us cut costs, but we’ve found other ways to adapt to this new world in which we live.
While it might not be making us much money, we’ve also strengthened our cash reserve in preparation for similar financial situations and emergencies. I’ve also taken the opportunity to move my retirement account from a previous employer into a dividend reinvestment fund. This fund is a stable location for my money, moves with the stock market, but is not quite so volatile, and it pays monthly dividends that are reinvested into the fund to build share total while not putting more of my money at risk.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.