What Losing 95% of My Money Taught Me (and my Fellow Countrymen) | by Houssam Seifeddine | Feb, 2022

For the past 2 years, Lebanon has witnessed a 95% devaluation of its currency and is trading in the black market at about 20 times its official value.

At the time of writing, it is trading at 22,000 LBP for the dollar (for reference, it was trading at $1=1,500 LBP just over two years ago).

And that’s not the worst part as, on top of that devaluation, Lebanese banks have imposed an unofficial capital control on depositors’ money with painfully strict policies on the withdrawal limits.

But let’s not keep dwelling on that matter and let’s talk about the valuable lessons I’ve learned during this economical crisis, and how they can help YOU in your personal finance.

Some people, and I have been one of them up until recently, believed that being wealthy was directly correlated to the money you have in the bank, and while this is partly true, leaving all your money in the bank could turn into a liability in no time.

So how can you protect yourself from this liability?

First of all, let me mention that in the past, societies used to run on exchange-based markets. In other words, whenever a person needed an item or a service, he had to provide one that the seller needed in return.

That meant that, at that time, if your seller didn’t need any of your items or services, you wouldn’t be able to get what you were looking for.

To solve that problem, people began placing value on assets like silver and gold which can be used to buy the goods, and eventually placing value on paper money that was backed by harder assets like gold.

Why am I describing this evolution? Well, to remind you that at its essence, money is a tool to exchange value between individuals or institutions. It’s a tool that provides you with freedom, opportunities, and a good quality of life.

It’s meant to be put to good use, not to rot in your bank account for decades while losing its value due to inflation.

So, investing in assets like gold, real estate, stocks, businesses, art (and recently, cryptocurrencies) is a great way of protecting yourself from the risks of inflation.

It is not enough to invest in assets. It is essential to make sure they’re sufficiently diversified in order to manage your risks.

And when it comes to banks, what the Lebanese population learned the hard way is to not keep your deposits in one bank. The ones who felt the least consequences were the ones who had multiple accounts in different banks or even better: in different countries.

That way, they made sure that they had enough safety nets to weather the storm if their bank faced bankruptcy, or in our case, the whole economy collapsing.

As a matter of fact, in every economical crisis, those with cash money were the ones who flourished, as they had the ability to buy everything they wanted at a discount.

During major economical instabilities, everyone runs to the bank to cash out, which leaves banks with 2 options: to either go bankrupt or impose strict withdrawal policies, as they don’t have enough liquidity to meet everyone’s demands.

Faced with those restrictions, people struggling financially start selling their assets, whether it be their cars, houses, or their businesses, at a competitive and discounted price in order to get some quick cash flow.

Therefore, keeping a proportion of one’s wealth in cash is an amazing safety net during turbulent times.

As a matter of fact, before the economical crisis, Lebanese banks have offered extremely high interest rates that have reached 5, 10, even 15%.

Many people benefited from those interest rates… until the whole financial system came crashing down on them.

The deal was too good to be true. Getting such a high ROI (return on investment) from such a passive use of one’s money was simply not sustainable.

Undoubtedly, Lebanon has a consumerist culture as the population is used to buying the newest phones, going out to fancy restaurants and clubs, driving luxury cars, and wearing the fanciest clothes and accessories.

We were collectively living above our means… and that eventually brought the country to its knees.

Just like a person spending way more than they earn leads to their bankruptcy, a country with much more imports than exports will face a trade deficit that would lead to an economic crisis.

What we have recently learned (the hard way) is to live below our means, to budget carefully, to save, to invest, to learn.

The Lebanese population felt the repercussions of the economic crisis starting late-2019. But as mentioned earlier, the crisis silently began a few years earlier when the trade deficit started.

In fact, let’s go even further in the past and state that the major problem started in 1997 when the Lebanese pound was officially pegged to the US dollar, virtually stabilizing it.

Some economists were warning about the risks, but very few people listened as everything seemed fine on the surface.

Moral of the story? Don’t disregard opinions and facts just because they don’t fit into your narrative.

Analyzing the ideas and statements that we don’t agree with is even more important than reaffirming our opinions with additional facts as this opens our minds to potential loopholes in our arguments and beliefs.

An important lesson that many have learned is the necessity to keep a competitive CV and to keep improving and sharpening our skills, even when times are good.

Having options to fall back to, other than your current job, protects you from the uncertainties of the future and lets you have your own independent and flourishing economy, regardless of how the country is doing.

Many Lebanese people either relocated when they found a job abroad, or made use of the digital revolution and landed jobs in the market of digital services offered by foreign or international companies.

Others tried starting their own Ecommerce shops, agencies, or startups, and offered their products and services to foreign countries in order to get some cash flow in harder currencies.

To sum up this whole post, there are a few key lessons that I have learned during my country’s economic crisis that could massively benefit you: