On Thursday the 28th of June, Stockton, California became the largest city to file for bankruptcy since Cleveland, Ohio went bust in 1979.

After months spent in failing talks with creditors the city filed for Chapter 9 bankruptcy, after the council voted 6-1 in agreement with the decision. City Manager Bob Deis, addressing the council said “We think Chapter 9 protection is the only choice left”, and Mayor Ann Johnston called the move a “most heart-wrenching decision”.

The story of Stockton is a classic tale of boom-to-bust that has been too commonly seen in the US and across the world in the last few years, and something that more cities will be looking at over the next couple of years. Reaping the benefits of years of plenty, Stockton spent lavishly on a new waterfront and generous pension and healthcare benefits for city employees.

To put it simply, the city racked up debts when the things looked particularly rosy, failing to shore up its future in case the worst should happen.

Once in a while we all get ideas and desires in our head that are beyond our financial means. We overspend on our own version of the Stockton waterfront- whether that be six new pairs of shoes, a new car or an expensive meal out. To a certain extent a blow-out when times are good can help relieve stress and provide a reward for hard work. Nevertheless, Stockton could provide a valuable personal finance lesson- celebrate the good times but only once you’re sure you can cope with the bad times.

Of course a lack of financial means will not only result in the city having to live cheaply for a while: Poverty can have serious knock on effects. As public services, including policing, have seen dramatic cuts and unemployment hits almost double the national average, Stockton now suffers one of the highest rates of violent crime in the country.

Speaking on Stockton filing bankruptcy, City Mayor Johnson said: “This is what we must do to get our fiscal house in order and protect the safety and welfare of our citizens. We will emerge from bankruptcy with a solid financial future.”

From country to country across different parts of the world a there is a similar trend that emerges. For many of us at least, the more we earn the more we tend to spend, with “buy a new car” and not “squirrel more away” the first thought when we receive that salary or wealth increase.

Few of us want to forgo all luxury in order to save every last Cent, and rewards are often a happy side effect of working hard to achieve goals, but a little forward planning and financial back up could help you stay on top during lean times.

This post was written by Lucia Harris, resident blogger at www.independentfinancialadvisor.co.uk, a UK based site that provides access to financial advisors and financial information on a wide range of topics from pensions to investments to savings and free debt help.

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