The Power of a Paradigm Shift

The Power of a Paradigm Shift: better prepared for whatever lies ahead.

The Great Recession of 2008 was like the tide retreating from the shoreline and exposing the good, the bad and the ugly underneath. While not minimizing the extraordinary pain and gripping fear of the unknown that seized our nation, I have been encouraged by a number of positive changes that I have observed the past several years. Here are 10 positive paradigm shifts:

1. There is a greater understanding of the truth that real estate and stock markets do not always go up. Recessions are a normal part of economic cycles, though admittedly, this one was extraordinary. There is no one perfect investment or pain-free solution to weathering a crisis like this. There are, however, fundamental principles that can help you weather the storm.

2. Homeownership has become a possibility once again as values and mortgage terms became more affordable. I seriously questioned whether our children would ever become homeowners here in Southern California. While the Great Recession saw many highly leveraged homeowners lose their real estate, it also provided opportunity for others like my son and his wife to purchase their first home.

3. Learning to live within our means is now more acceptable. It takes discipline and a long-term focus to maintain this commitment, but the payoff comes with being better equipped to withstand the ups and downs of uncertain economic conditions.

4. Budgeting is no longer a negative, but a necessity with recognized value. Think in terms of a “spending plan.” Begin with the income sources you have available to allocate each month. Next, list your non-discretionary items such as your mortgage, loans, taxes, etc. Once deducted, determine how much you have left to allocate among discretionary lifestyle items.

Suggestion:

Make giving and saving non-discretionary instead of squeezing them out of the leftovers.

5. It is no longer the norm to be content with escalating debt — or ignoring it altogether. In my opinion there is a distinguishing difference between obligation and debt. Obligation is making systematic payments on an appreciating asset that can po- tentially be sold for more than is owed.

Example:

A prudently structured home mortgage would be considered an obligation rather than a debt. On the other hand, debt is making systematic payments on a depreciating asset, or being delinquent on an obligation. Carrying a balance on your credit cards with interest is a classic example of debt. How much of yesterday’s “fun” are you financing with tomorrow’s dollars? Gratefully, this has been on the decline the past several years.

6. Savings in the household-spending plan has moved up on the priority list. If saving or “paying yourself first” isn’t a top spending plan priority, it should be! It is often a wake-up call when we quantify the savings necessary to retire from a paycheck to a portfolio distribution check. Saving is important at every age.

7. Priorities have now aligned to more closely reflect what is truly important in our lives. Bigger isn’t necessarily better and less can actually be more as we try to simplify our lives. Surrounding ourselves with more “stuff” just complicates our life as we work hard to maintain and protect it.

8. It is not just assets on a balance sheet that are valued, but rather balanced lives and healthy relationships. We are redefining the term net worth to encompass much more than just assets and liabilities. What is your legacy going to be? Does it include a plan to transfer your wisdom along with your wealth?

…put aside anxiety for a moment and understand that nothing that touches your life takes God by surprise. He has a plan and is always in control.

9. We now understand that there is very little we can control and the only thing certain is uncertainty. The importance of a long-term financial plan — with accountability — can help keep us focused and less inclined to make emotional rather than purposeful decisions.

10. “It’s not all about me!” What a blessing it has been to see people extending their reach to share their time, skills and resources with those in need.

We will always face economic uncertainty. Let me encourage you to put aside anxiety for a moment and understand that nothing that touches your life takes God by surprise. He has a plan and is always in control! Be encouraged that by getting your house in order and keeping your priorities straight, you are…

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