Rich Habits Podcast - 3: How to Prepare for a Recession

Episode Date: March 14, 2023

In this episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz share three tips as it relates to preparing for a recession: building a realistic budget, polishing up your resume and cover letter, as well as diversifying your income and investments. ---Be sure to check out Public's new ⁠⁠⁠High Yield Cash Account paying 5.1% APY.⁠⁠⁠ This is higher than anything else on the market and is FDIC insured up to $5M. ---Earn 5.1% APY using a Public HYCA, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Opt-in and share your email, ⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠Learn more about our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠4-module video course!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Download our FREE Budget Template, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠To learn more about Robert: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://stan.store/RobertJCroak⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠To learn more about Austin: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://stan.store/austinhankwitz⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Contact: [e-mail] ---Hankwitz Group LLC has an existing business relationship with NEOS Investment Management LLC. The opinions expressed are those of the author, and the author owns several NEOS ETFs.

Hey everyone and welcome to the rich habits podcast. My name is Austin Hankwitz and I'm joined by my co-host Robert Croke. Robert is a seasoned entrepreneur in his 50s with more than 200 million in company exits under his belt. While I'm just a 20-something year old trying to figure it all out, as the show name might suggest, every episode we talk about rich habits as they relate to business, finance, and mindset. However, we try to bring you two unique perspectives along the way. One from an industry veteran, Robert, and the other, myself, someone just trying to figure it all out. So, Robert, why don't we jump into things? What are we going to be talking about today? In this episode, we're going to be talking about how to prepare for a recession. Yes, people, it's looking like we could be in a recession as we've spoken about.

Specifically, as it relates to budgeting and saving your money, what to do if you get laid off, as well as how to think about investing and diversifying during a recession. The purpose of this episode is not to scare anyone, but instead to ensure you're prepared, giving you peace of mind and the ability to stay in control of your life. Stay in control of your life. I love it. So I think best way to kind of kick this off and staying in control of your life at any time is the budgeting side of things, right? So let's talk about how to build a budget and save for an emergency. So if we kind of rewind here, I'll walk everyone through how I, a 26-year-old, built my first budget after I graduated college and had to start thinking about money for the first time. What I saw online as one of the best ways to build a budget was something called zero-based budgeting.

Now, essentially what zero-based budgeting does is, let's say, you start every month off with the amount of money that you will get from your job, call it $4,000 or $5,000. And what you want to do is take all of this money and allocate it to different spending categories or different events along the month all the way down till you have $0 left to allocate. Right. So start at $4,000. You're going to allocate $1,000 here, $500 here, $200 here, $150 here, all the way down

until there's nothing left in your budget to allocate. An application that I use on my iPhone all the time to help me do this, and I think they have website as well is called every dollar.com. It's Dave Ramsey, if you guys are familiar with him, it's his application. He does a really good job of sort of categorizing it for you and helping you build that budget for the first time. But if you are just brand new and you don't want to really try and figure out all this zero-based budgeting stuff, something that actually my girlfriend has told me about that really helped her create her first budget out of college was categorizing things as essential or non-essential. Right? There's just two categories. So from the

essential side of it. Think about your rent, your groceries, your gas for your car or your car payment, your car insurance, your Wi-Fi, things that are essential for you to live, do all the essential things, right? Where on the other side, it's the non-essential things, the eating out, the I want to go on a vacation, the I want some new clothes in my closet or some new shoes, right? So if you're able to just categorize the way you spend your money into these two different buckets, everything gets a lot easier from a budgeting perspective, and you can begin to say, okay, I know I have to spend $3,000 a month or $4,000 or $6,000 to survive on my essential spending. If I'm making less than that, or if you have a deficit of some sort, you now have the benchmark to say, how much do I need to

make to cover that delta and begin to move forward toward financial independence? It's remarkable recession or otherwise how many people don't have a budget or they say they have a budget, but it's so loose fit that they don't really know where they stand from a debt to income ratio. Everyone listening, please research debt to income ratio, write it down, put it on a post-a-note, put it on a dry erase board, and really unpack what that means because it would be incredibly beneficial for all of you to have a real budget in a real app. It can be a Google document if you'd like. But recession or otherwise, just knowing where you're actually at is just a tremendous tool for you because at the end of the day, what we're here to do is give you guys these rich habits to help you understand

your finances. And one of the goals is to get you to put away 15 or 20 percent a month into your investment portfolios. And that all starts with budgeting and understanding where you're at. So yeah, this is a great topic, recession or otherwise, Austin, that people really need to be on top of. So let's talk a little bit further and unpack the debt to income ratio for a second, Robert, because as someone who has successfully applied and received a mortgage, I was able to purchase a house here in my 20s, the debt to income ratio was a very important term that I had to understand, and that's what the lenders think towards. So very simply put here, think about it like this. Let's say you're bringing home $4,000 every single month. Let's say that 400 of that goes to debt every single month.

Let's your car payment. Let's just say that's the only debt you have is a car payment of $400 a month. So the debt to income ratio is, as a ratio, how much debt goes out every single month of your income. So if it's $400 of that $4,000, your debt to income ratio is 10%. And I think the rule of thumb here is, I think, 35 or 36% is kind of that cap if you're looking to apply for a mortgage or some sort of large purchase. Like anything with budgeting and investing, it's just a good rule to follow because a lot of people just go, oh, I'm looking at apartments in their $1,600 a month. then they find one that they really love that's $2,200 a month, and they're like, I can afford that without ever even really looking at their debt to income ratio. So that's why I just harp on it a lot that people need to do, let's call it, quarterly

tuneups to know where they're at. Maybe they add a side hustle, and that helps their bottom line a little bit. And so overall, it's just really about understanding where you're at because too many people right now, I talk to people that make six figures, mid-six figures, and they still don't know where they're at. And it's just really important to stay on top of it and do tuneups so you know where you stand from a budgeting perspective so you can get yourself in a good situation, especially in light of recent news and where we are economically in the United States right now. So let's stay on that topic, Robert, and talk about saving money, right? So this is exactly what you want to be doing.

You want to find this money in your budget every month to save. And what's really cool about actually the cool product that I've found online here called Public Treasuries, is they allow you to compound your savings through Treasury bills. So right now you can earn about 5% annually on your cash when you purchase government-back treasury bills. Not only is this much higher than the 2, 3, 4% high-yield savings accounts are paying right now, but this amount is fixed, which means you'll earn that money guaranteed. However, here's the problem.

The website people use to buy these treasuries is clunky, and it's really hard to understand. It's actually called treasuries direct.gov. if you're listening right now and you want to give it a whirl. But of course, we have a solution for you, and it's a solution we both personally use. It's called public.com, and they've made it incredibly simple to buy and sell treasuries on their website through their new product called Public Treasuries. You can use a debit card or even connect your whole bank account if you'd like.

It doesn't matter. And when you buy these treasuries on public.com, they're held securely in custody at the Bank of New York Mellon, the world's largest custodian bank and security services company ever, right? Huge, super safe, nothing to worry about. Now, personally, I have $15,000 of my own money in public treasuries, and I'm reading about 5.1 or 5.2% right now, allowing me to compound my savings. So as I save money, I'm now getting more and more money in my savings account. I think I'm up already $20 or $30 just the last couple of days because of the amount of money I have here,

which is $20 or $30 I didn't personally have to save. So if you want to earn 5 plus percent on your savings account as well, there's a link in the description of this episode that will take you to public.com and walk you through creating an account. Once you're in there, you'll see a section about treasuries, click on the purchase button, and you're off to the races. There is no lockup period, and you can buy or sell these treasuries at any time without fees, which means they're as good as cash.

You mentioned it's a fixed rate, and this is something that's very, very important that a lot of people aren't thinking about as we deal with these bank crisis and where the stock market's going and where the real estate market's going is the difference between fixed and variable rate. So many people right now that might be out there looking at buying a home or buying a business and getting a mortgage, you just have to be really careful with going with a variable rate. A fixed rate is great because you know what you're looking at, you know what the term is, and you know where that's going to be in a year or two from now because a lot of the analysts and a lot of the people

much smarter than me, believe that we are going into some dark days moving ahead. And if you have a variable rate, or you're considering a variable rate, just be careful there because obviously the word variable means you don't know what it's going to be. And there could be some really troubling times for you of how that affects your payments. So keep that in mind. Let's say you're looking at this mortgage or you're looking at this loan to buy a business and the rate right now is 6.25, but it's a variable. What happens to you if it goes to nine and a half percent or 11 percent or, God forbid, 13 percent over the next two years, and your payment goes up by the thousands rather than a few dollars. This is something to just really consider non-related to the fixed rate of the product that Austin's talking about,

but just as an overall perspective, we have to be careful moving into these uncertain economic times. Let's say that we fast forward six months and the dark days are upon us and people are losing their jobs. What would you tell the person right now who is sort of in a salesy job? They haven't really spruced up their resume maybe in a couple of years. They've been in this kind of job since maybe 2021. They're feeling pretty good about it. But, you know, it's a very cyclical job. Do you have any advice to the person who's listening right now who might be in those shoes?

Yeah, I think it's just never a bad idea to polish up your resume. So many great tools out there. Just overall, I would say I would really consider diversification. So many people are single income persons. or families, or maybe each person in the relationship has one income. That's just a recipe for disaster in uncertain economic times. So to me, I would really just start looking at diversification, finding new side hustles that are in demand,

and really just polishing up my skill set, because so many people, you get comfortable in a job, you've been there 11 years, you're making good money, you're putting some money away, but then poof, that job disappears, that industry disappears, things change, and all of a sudden you feel like you're starting over. So it never hurts to have a backup plan and get it enacted.

So I would say that would be the most important thing for me, preparation with diversification. Preparation with diversification. Stamp it, quote it, tattoo it on your arm. I love it. You know, as it relates to polishing up your resume, think about the actions and the outcomes that happened because of you working at your job, right?

If I was a hiring manager and I had hundreds of resumes come across my desk for a specific job that I was hiring for, I'm going to be looking at the resumes that tell me, here's who I am, here's what I've accomplished, here's who I've been able to increase whatever the KPI is that we're working toward as an employee, here's the team I managed, right? I want very clear, actionable takeaways from this resume. My name's Austin. I was able to increase revenue for the company by $3 million by strategizing on the specific initiative that ended up bringing in X amount more customers, right? Those are the bullet points you want to have on your resume, not just, I was Austin and I initiated this thing. It was cool, right? And the other thing

that Robert mentioned for a moment was the chat GPT stuff. And I think what's really interesting about chat GPT is not as a skill set per se, but instead sort of as an assistant, right? So if we think about applying for jobs, one of the hardest things and time-consuming things that happen is you've got to write these cover letters. You've got to sit down and say, okay, I need to now tailor my resume. I need to tailor the cover letter to this. So the hiring manager actually wants to read it. And so I don't know about you guys, but I hated doing that when I was applying for jobs. But it's certainly impactful if you're someone who is going through these applications and reading this because, wow, you see that this applicant really wants this job. They've been taking

the time to do ABC XYZ to their cover letter. So as someone who is listening to this podcast, so you're already smart. We know that. So let's get you a little bit smarter now. Think about chat GPT as the copywriter for your cover letter. Write prompted to say hi chat GPT, write me a cover letter that explains this part of my resume for this job description. Just copy paste some stuff, play around with it. Maybe there's even tools online that can help you, but I know for a fact using chat GPT and AI to help you write those cover letters are going to speed up the process tremendously. One of the things I want to touch on that you glossed over but is really, really smart and a must. The difference,

between someone that's a 10-year expert versus someone that has 10 years experience. You know, there's so many people out there, they get into a job, they get pretty good at it, and then they stop learning after a year, and they just coast. So that's one of the key things that I think you said earlier on about this topic is the KPIs. Is that in your resume, in your whole pitch of yourself of why you're great, touch on those KPIs, touch on what you did to improve in your job? What did you learn more of? How did you bring up the profits for the company? How did you improve this division? Because anyone can put together some cute words that says, hi, I'm great. But at the end of the day, if you have performance-based information that can support that, it's just going to

help your efforts so much more in getting that new job. So I just think that's really important to touch on that because so many people don't realize as an employer myself and someone that hires a lot of people every year. I want to know what you can do to move the needle and what you do to bring value, not to just check off boxes. That is so important for people listening right now. I was actually going to ask you as an employer, what are you looking at it and you beat me to it, Robert, I love it. On top of that, let's pretend that the person did get the job interview. As someone who was interviewing, you know, call it a couple years ago for a bunch of finance jobs out of college, want to really encourage everyone listening right now to research the STAR method.

S-T-A-R-S-R-M-T-R-Method. And I'm not going to go into detail about it here. I don't think we have enough time, but it is one of the best ways to think about your job interview process, answering the questions, making sure you talk about all the goodies, and recruiters love it. And I want to touch on one more thing that a lot of people don't consider. When building your personal brand online,

whether it's LinkedIn, Facebook, Instagram, TikTok, or whatever, keep that into consideration as well, because I think a lot of people, just kind of blindly do content on their social media platforms. And I think you should have a plan there as well, because I'm going to tell you what, the first thing I do when I get a resume or I'm looking at a hire, especially as a big hire, is I go to their social media, see what they're posting, see what their style is, how reflects on them. And a lot of people don't consider this. And that's a big no-no. And the other thing they do is they consider it after it's too late, where they go,

oh, I'm going to go look for a new job now. I better clean up my social media, but they only clean up the last couple weeks or a month of their social media. But someone like me or a hiring manager is going to look back and see all those pictures, you know, drunk at a bar, bragging about how you danced on the bar or whatever it is.

These are not good looks. So just keep that in mind as well as a tool because your entire life is on display and you just want to make sure you're movie ready. Let's move on now to our last topic here of this episode, which is investing in diversifying during a recession, right? What to be thinking about as investors, as wealth builders, as lifelong wealth builders listening to this podcast. The first thing I really want to just encourage everyone to reflect upon is don't be afraid of the ups and downs

that come with recessions and bear markets. Continue to build your base, right? Robert does such a good job of talking about, you know, before you jump into this stock or jump into that crypto or jump into this business or whatever, build your base. If that's 20,000, 50,000, $100,000 invested into index funds, and it might be different for everyone, depending on how much money they make or how much they already have. Make sure you're building your base and you're continually to dollar cost average into that base before you think about, wait a second, should I jump all this money to Bitcoin now because the banks are failing? Or should I, you know, buy the Beanie Babies because my uncle told me that it's the best store of value? Like, okay,

hold on, let's take a step back, build your base, then consider doing some other things with your money. Yeah, let me touch on that because I know I harp on it a lot, so anyone listening, keep listening. It's just so important to diversify and get a base built. I usually say $50,000 to $100,000, but it's different for everyone. And the number isn't so much the important part. It's just having the base. If you go back decades and decades and you talk to any of these billionaires that are out there right now, you hear constantly people saying, if I could do it all over again, I would just have a really

great portfolio of index funds circling around the S&P 500. And the reason that Austin and I harp on this all the time is too many people get lost in the shiny ball syndrome or the news cycle or the latest fake guru on Instagram or TikTok telling you what to buy. And it really just comes down to just following these tried and true practices of decades and decades that have built massive wealth for so many people. And that is why we continually talk about building that base around index funds. And then when you get to that benchmark, whether it's $50,000, $100,000, $250,000, then you start with some alternative investment strategies to maybe take on some more risk, but also diversify so you earn a good place overall in your portfolio. So let's talk about those, right?

That might be real estate, for example, something that I'm personally trying to explore right now, better understanding, okay, what is a rental property at my age of 26 right now here in Nashville? Is it a duplex? Is it a triplex? Is it a single family home perhaps? You know, I'm also thinking about these, obviously, these T bills and these treasuries paying 5% plus. I'm not at all keeping all of my money in cash in my brokerage account earning 0% knowing that, you know, cash is a position. I want to keep some cash on hand for case the markets do something crazy. I have the dry powder to take action and do something interesting there with that money if I need to. So I'm keeping that in treasuries.

I also have exposure to cryptocurrency, of course. I've got about five and a half, six percent of my net worth of investable assets, right, invested into crypto. You know, I think what's just really important for the people listening right now and the key here is not to put all your eggs in one basket. Not to say, okay, the only way I make money is through this job. I'm taking all that money and I'm paying it down on my 3.2% mortgage, right? That's like, okay, let's take a step back and think about, is that the best use of your time from a money generation perspective? Could you think about a side hustle, think about diversifying income streams? And then is paying down a 3.2% mortgage right now the best use of your money?

Should you that instead be saved in earning 5.3%? Should that be invested into index funds? Do you have a base yet? Do you have any exposure to real estate through fund rise? Or how are you really approaching this diversification problem? And what are you doing to make sure that all your money isn't coming in from one source and going out to another? Yeah. And that's a great, great point, you know, leading into where we're at with some of this recent news with bank crisis and some of the stock market things that are going on and real estate as well.

I think the overall sentiment is the market is going in a kind of different direction that we've hoped. to see. So the diversification is very important. I think people could look at definitely, you know, holding some gold and silver. I'd prefer to own it physically, not just, you know, digitally. So something to look at there. You can buy actual gold and silver, have it delivered right to your house and put it somewhere safe. I would also look at Bitcoin. Bitcoin is a great hedge against everything that's going on right now. And I think Bitcoin is in a very strong position coming into the next, let's call it 18 months or two years. And you hit the nail on the head as far as how much I believe your investable income

as a percentage you should have in crypto or Bitcoin. And you said five or six percent. And I think that's a great place to be. Real estate is a good hedge against all of this as well. But like I said, make sure when you're looking at what loan structure you're going after to buy this real estate, if it's an investment property, is just be cautious because it might be a variable rate. And so we've got to look out for that.

You touched on the T-bills already. But I think it's just diversification is just the key because you don't want to have all your eggs in one basket. And you want to be able to make sure that you're safe because we don't know where this economic meltdown is going to go. We don't know if the government's going to bail it out. We don't know if it's going to have to flush out for a couple years. And for those of you that weren't around during the 2009-2010 crisis, you know, when there's blood in the water, there's also opportunity. So we have to keep that in mind. I don't want this to come off as all gloom and do. Austin and I want to make sure that you guys are aware of the pending situation because not everyone

studies the economic conditions like we do. And so it's just very important that we share our thoughts and our stories. And really, the diversification part is just so important to make sure that if one avenue goes bad, like in 2009, real estate was a mess. And friends of mine that were only in real estate got completely wiped out. So that's where the diversification happens, where you can have some money in these treasury, you can have some money of Bitcoin, you can have some money in various places to make sure you're well covered in case things really do hit the fan. Well said, Robert, very well said. Do you have any big takeaways or maybe one or two just quick highlights for anyone listening right now that feels comfortable with their money, but they're still sort of like,

what can I be doing to take advantage of the situation, right? Maybe someone that's that says something that you just said, Robert, which is in a recession or during times of turmoil, people have opportunity, right? What sort of ideas or opportunistic kind of indicators should people be looking at that might inspire them to say, okay, I'm going to act on this? Yeah, I think a lot of it comes down to what we've just spoken upon and then also the things that I talk about a lot in my lives, and that is the diversity of your skill set and where your money goes. But also, be willing to take some risks because so many people don't invest in the good times because they're afraid of risk and then they even tighten up even more during the bad times and they're afraid of taking

risk. And trust me, you know, these are some of the best times coming up while the markets are suppressed and while everyone is scared to be able to go out there and finally take some risks. So I think it's smart like you touched on earlier to have, you know, some dry powder and what that means is have yourself sitting in some cash right now until things kind of figure themselves out a little bit. But also when I say that, I don't mean have cash under your bed frame. I mean sitting in cash in your accounts, but also get it making money in some of these products that have guaranteed returns that, you know, like the CDs or the public.com product that we like. There's just a lot of ways out there to diversify while still keeping your risk

your risk tolerance low. So I think that's an important factor here is diversification, taking some risk but calculated, and just really making sure you're prepared for what's things to come by getting ahead of it rather than waiting for it to happen. Well said. Perfect, Robert. Everyone listening right now, we are going to obviously publish another episode next week, and that episode is going to be all about tax ideas, how to pay your children, how to think about taxes from a business perspective, how to think about retirement accounts, the differences from tax perspectives, right? It's going to be a whole episode on taxes. It's going to be a blast. So we really encourage you to stay tuned. Hit the follow button on Spotify, Apple Podcasts,

or wherever you listen to this podcast, be sure to leave a rating and review. And we look forward to seeing you in our next episode.