The unexpected collapse of Target stores last week can be a valuable lesson to us all. Bad things happen and in a perfect world you are prepared to deal with declining financial circumstances.
In financial planning it is advisable to have an emergency fund available in case sudden financial difficulties occur. That is the theory and it makes perfect sense.
You might lose a job, encounter unexpected major housing repairs, a family emergency or another event affecting your pocket book. These unplanned situations do happen.
The idea is to have a certain amount of money put aside for that rainy day. This amount can be related to how much you earn. For example, have six month’s salary or enough cash to pay your living expenses for a specific period of time.
It would help if you knew the type or magnitude of your surprise downturn, but to state the obvious, you don’t know what the future will bring. Most of us are either optimistic or just turn a blind eye to negative “what if” scenarios.
If you are saying “this type of thing could never happen to me”, well it does. Sit down and fasten your seatbelt because real life does throw us some curves and no matter how invincible you think you are, these financial surprises do happen.
If it can happen to Target stores it can happen to you. When Target announced they were preparing to invade the Canadian retail market, there was speculation about which competitors would be forced out of business, or at least would be reduced to a fraction of their former self.
A retail David and Goliath battle was going to play out as Canadian consumers would switch their current shopping patterns to get better prices from a giant U.S. icon retailer. There wasn’t going to be room for all competitors. We just did not know which competitors would falter.
Less than two years ago Target went from no stores to 133 major retail stores. From the start, this American giant’s assault on Canadian soil was pretty well underwhelming with mistake after mistake. Most thought it would just be a matter of time for them to correct their errors and to prosper.
They would work their magic, invest more money and use their considerable abilities to turn their Canadian operation into a profitable division. No other option could be conceivable.
Here is where it got interesting with the most significant lesson to be learned in our own financial lives. It is not that they got into trouble; because that can happen to us all. It is how they reacted.
Above we mentioned the solution to this type of sudden economic downturn was to have an emergency fund. In theory that is what is needed. Unfortunately theory and reality often are miles apart.
Today not only do most people not have money set aside for financial emergencies but they are living beyond their means and have far too much personal debt. There is no extra money available and personal debt reduces your financial options.
The best solution and likely the only strategy for solving a financial problem is to make immediate and bold changes. What expenses can you stop and how can you generate more cash?
Facing the problem and dealing with it is often the hardest but best solution.
Imagine the different options Target considered. Closing all of their stores in Canada will cost them hundreds of millions of dollars. A very bold move. Management must have felt that was the best option. A significant financial loss and dent in their solid reputation.
Target acted swiftly and we assume they agonized over the many options available, but in the end they made a tough business decision.
Individuals can learn from this. If your personal financial circumstances suddenly are in decline, the best solution is to consider your options. Make whatever decisions that are necessary and make those decisions regardless of how difficult they are.