Detroit’s bankruptcy should motivate everyone, to think carefully about their financial choices. No one knows how Detroit will pull itself out of this tailspin. But at least we can learn these five things from the city’s mistakes.
#1: Prepare for an Uncertain Future
During the 1950s, Detroit was one of the U.S.’s most prosperous cities. The booming auto industry made it possible for people to earn high salaries even without college educations. Unfortunately, Detroit didn’t look far enough ahead. When the auto industry began to change, Detroit found that it couldn’t keep up. People lost jobs and companies lost revenue.
Don’t make the same mistake. If you earn a high income now, save as much as you can. You never know what will happen in the upcoming years.
#2: Always Look for New Opportunities
Detroit’s auto industry didn’t keep up with manufacturers from other countries. Japan kept developing innovative ideas, but American car companies kept making the same thing.
Never get comfortable with your success. That’s one of the mistakes that Detroit made. Always look for new opportunities that will move your career and finances forward.
#3: Diversify Everything
Detroit put all of its eggs in one basket. When the auto industry began to slip, Detroit fell with it. If it had devoted more resources to other industries, this wouldn’t have hurt so badly.
You can apply this lesson to your own life. Create as much diversity in your income as possible. If you get all of your money from one job, start thinking about ways you can branch out. Perhaps you can make extra money from a hobby. Or maybe you can find a job with a company that makes a profit from a diversified client base, i.e. not one client, where if you lose them, then you go down. Also consider investing more of your discretionary income.
If you lose your job, you can turn to these other opportunities so that you don’t lose your total income.
#4: Fund Your Retirement
Detroit ran into trouble because it couldn’t fund the pensions it promised public servants. Without enough money to pay them, the city had to declare bankruptcy.
As an individual, you should keep this in mind when creating a retirement fund. Make sure that you keep up with your retirement goals. If you fall behind, you might never catch up.
#5: Recognize When You’re in Trouble
Detroit let its financial problems add up over decades. If the city had taken action 30 years ago, it wouldn’t have to face bankruptcy today and it would have fewer debts.
If you know that you have a financial problem, don’t ignore it. Get help from a professional so you can stop accumulating debt and start moving in the right direction.