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Lessons From the Debt Meltdown in Europe

It seems like everyday I load up Yahoo! Finance to see what’s going on with the market today, and there are a cascade of headlines revolving around the Eurozone. Countries like Greece and Ireleand have had a slew of debt issues in recent months, and even with economic assistance from other European countries, they may not be out of the woods yet.¬† The problems aren’t isolated to them, however, as now Spain has had to seek re-capitalization for its banks as well. As a consumer, what lessons can we take from this economic disaster? Quite a few, actually.

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Don’t Let Your Investments Sink You

In the world of business, risks are commonplace. We all enjoy reading stories about small business owners who went out on their own and put everything on the line, double mortgaging their house and maxing out their credit cards only to finally hit it big and come out a millionaire on the other side. Far too often, however, reckless disregard for the consequences of risk¬†lead to financial ruin, and countries like Spain are feeling that pain right now. Don’t be Spain. Carefully weigh your appetite for risk and, if you’re like me, never bet more than you are willing to lose on a new venture or investment. The possibility that you’ll fail is ever-present, and while you shouldn’t shy away from risk, always understand what exactly will happen should things not go your way.

Confidence is Key to your Financial Strength

Spain is in this mess right now because their banks are holding assets that are essentially junk at this point. For years, people were willing to lend the money to these large banks because, well, they were large banks and they were good for it. Once the confidence in these institutions was shaken, consumers began dropping out and the banks couldn’t find creditors to lend them money without being charged an obnoxious amount of interest. Thankfully, they are so important to the financial system that both the Spanish government and the broader Eurozone were willing to step in and help. There is no such safety net for you. If your credit gets crushed, your lenders will be more than willing to watch you go to bankruptcy court.

Control Your Spending

Tightening the proverbial belt is rarely a fun process, and the temptation is always there to ignore it. For years, cost cutting measures and making tough choices were put on the back burner in lieu of making people happier in the short term. Eventually, though, as it always does, the situation inevitably collapsed. If you don’t keep on top of your spending habits and saving, eventually something will come along to break you.

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