Financial Meltdown: What lessons have we learned so far?

With the collapse of Lehman Brothers about a year ago, we came face to face with the financial meltdown, which led to severe unemployment and depletion of retirement savings. Though the economy and the stock market have recovered to some extent, there are certain timeless lessons which the financial meltdown has given us. Let's take a look at it:

• Living within your means: Unfortunately, most of us had forgotten this golden rule. We had started spending more than what we earn while the rule is just the opposite - spend less than you earn. It's very important to save for the future. It is our savings which can help us in dealing with any financial crisis. So, once you get the next paycheck, make sure you keep aside a certain sum of money as your savings. Keeping an emergency fund is also a good option.

• Financial regulators cannot always help you: It was believed that financial regulators like Securities and Exchange Commission (SEC) and Federal Deposit Insurance Corporation (FDIC) would create a safe place for Americans so that they can save and borrow the money in order to buy a home. However, with time, mortgage and appraisal fraud became widespread. Moreover, they were ignored during the financial boom. No rules were enacted until the damage was fully done. Though rules have been enacted and government has offered bail-out to the banks, the foreclosure rates have still not come down. Now, the White House has proposed a number of financial regulations in order to help the common people.

• Don't invest much in your company's stocks: Most of us invest our savings by buying the stocks of the company we work for. In the past year, we have seen that a large number of people lost their jobs due to their company filing for bankruptcy. Along with that, they also lost upon their savings as they invested in the stocks of the company they were working for. It's better to keep our savings in the savings account rather than increasing our risk by investing it with the employer.

• Risk Management: It's not so easy to manage risks. During the housing boom, Wall Street convinced the investors that default risk could be eliminated. They came up with a number of "structured" products that mixed loans together and added insurance in the form of a credit default swap assuring the investors that there was no risk of a homeowner defaulting on a mortgage. However, with time, homeowners defaulted on the mortgage payments and the structured products were of no help.

• Property is not a great way to save money: People thought that a house is a great way to save money. You invest a small amount of money in your property and then with time, the property value would increase and so your investment. With the financial meltdown, we realized that property values may decrease leading to mortgage defaults and foreclosures. Thus, we learned it in a hard way that property values are vulnerable to depreciation.