The Personal Finance Podcast - There’s a Recession Coming. Here’s How to Deal With It.

Episode Date: June 24, 2020

In this episode we cover:  Why There’s A Recession Coming  How to Handle a Recession How to Prepare for a Recession  Why Recessions Happen  How to Handle Your Investments in a Recession  Resources in this episode:  Debt Prices Beyond 2008  Dollar After Dollar  M1 Finance Best Place to Invest  Personal Capital Free Wealth Management and Budget App CIT BANK (Best Savings Account) Learn more about your ad choices. Visit megaphone.fm/adchoices

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Find your advisor at IG Private Wealth.com. On this episode of the Personal Finance Podcast, we're going to talk about how you need to hold on to your hats because there's a recession coming. What's up, everybody? And welcome to the personal finance podcast. I'm your host, Andrew, founder of Dollar After Dollar.com. And today on the podcast, we're going to be talking about some fun-filled news because I got a news flash for you.

And you got to hold on to your fancy pants because there's a recession coming. And I'm not just talking any recession. I'm talking a real recession. See, here in Florida, we have hurricanes, and hurricanes can devastate a city, but the cool thing about hurricanes is you know exactly when they're coming. And you can prepare by going to get flashlights, batteries, waters. But there's another type of natural disaster that we're all familiar with called tornadoes, and we have no idea when tornadoes are going to show up.

And they can come in the middle of the night while you're sleeping. they can show up when you least expect it. There's no time to prepare, and there's no time to go and grab supplies, because once that tornado hits, the clock is ticking. And I'm going to let you in on a little secret. There's a storm brewing out there, and whether you deal with it as a hurricane or a tornado is up to you.

But the choice is up to you, because there's a recession coming. And I don't know when a recession's coming. I don't know how soon before the recession's going to hit, but there is a recession coming. How am I so confident in this? How do I know that there's a recession coming? How can I even make claims like this?

Because there's a fact built right into my claim. There's always a recession coming. The economy moves in cycles. And there's actually life cycles of an economy. If you look at economic charts, there's ups and there's downs. But when everything's fine and dandy, people tend to forget that recessions can happen. People tend to forget that they were dragged through the mud just a decade ago. And you have to continually remind yourself of this.

Because recessions are dangerous for all of us. They're dangerous for our jobs. They're dangerous for our financial responsibilities. They're dangerous for our families. They're dangerous for everyone around us. But you have to prepare for them. And if you prepare for them correctly, you're going to be absolutely fine. And I'm going to show you exactly how you can do this.

So let's get into it. Now, one thing we need to get out of the way right off the bat is that nobody knows when a recession is going to happen. Not the president. not the head of the Federal Reserve, not the news media, not a single person on this earth knows when a recession is going to happen. But there are some indicators that you can look at to see if there's a higher likelihood and a higher chance of a recession happening. And the first thing I look at is debt of the entire nation.

And right now, as I'm recording this podcast, the country's debt is pretty high. Actually, it's higher than the Great Recession in some areas. So if you look at something like consumer debt, which is debt on credit cards and debt on consumer spending, household consumer debt has risen beyond the levels of the Great Recession, which was in 2007-2008, the great housing crisis and the great financial crisis of 2007 and 2008. And the Federal Reserve came out with charts that actually showed this last year. And I'll leave a link to those charts in the show notes so you guys can take a look at this for yourself as well. But the debt is continuing to rise month over month.

month. But this time around there's a fun-filled twist because there's student loan debt, which we did not have during the Great Recession at this type of level. Because student loan debt has already reached over a trillion dollars. And it's holding a lot of people back from their financial wellness. And on a later episode, we're going to get into how you can crush your own student loan debt where you can get rid of that student loan debt so it doesn't hold you down and weigh you down anymore. Understand that right now, there are millions and millions of Americans holding massive student loan debt. And it really is hurting them financially.

And if they lost their job or if a crisis happened, it would cause a major issue for them to be able to stay afloat because that student loan debt has to be paid. And a lot of millennials who hold this student loan debt, they make modest entry-level salaries. You have to start somewhere. So they make a low salary. And as we know, millennials also like to show off

like they make a lot more money for the IG or whatever else they want to do. That leaves them paying the minimum on their student loan. loan debt. And this financial beast just continues to grow because your student loans, if you have a high interest rate, your student loans are actually working backwards against you. And compound interest is going the wrong way for you. And it's a major burden that a lot of people are holding that can be a huge problem in a recession. The third piece of debt is auto loans. Now auto loans have actually risen to a historic all-time high, which is another problem because now you're compounding consumer debt at an all-time high. You have student loan debt at an all-time high, and now auto loans are

at an all-time high. So people have major car payments, major student loan payments, and they haven't paid back their credit cards yet. And finally, there's mortgages. And a lot of people are carrying mortgages, and lenders are now starting to loan mortgages back out to people with really low credit scores again. And it's absolutely crazy. It's almost like the mortgage-backed securities of 2007 and 2008, but they're lending them to people under a different type of name. And it's happening all. over again. Now housing has stayed steady, which is a good thing. But people are getting mortgages for too much house and they're becoming house poor. So you combine someone who becomes house poor, has credit card debt, has a major student loan payment that they have to cover, and has a major

auto loan they have to cover, and a financial crisis hits and they don't have a job, it becomes a massive problem. But like I said, I don't know if this lavish spending spree and everybody is bawling out with their new cars and their new houses and everything else, I don't know if that's going to turn into a recession. And if anybody tells you they think they know it's going to turn into recession, then don't listen to them. Write them off. Not a single person in this world knows when a recession is going to hit,

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And that is to save a large portion of that juicy paycheck you have right now. Because saving a large portion of your paycheck will allow you to weather the storm if you lose your job or if any other financial windfall comes your way. It'll give you financial peace. It will relieve your stress. And it will actually relieve you from panicking because most people during a recession, panic, but if you're backed up by some cash, then you're going to make much stronger financial decisions than everyone else out there who doesn't have that cash backing them up. And if you have that large amount saved, you'll be able to weather any storm. My suggestion would be to save up

at least six months expenses in your emergency fund for recessions, because a lot of people will lose their jobs during those times. And it's much harder to find a job if you get laid off or furloughed or anything else. It's much more difficult because there's more people out in the workforce and you're going to need more time to find a job. So that's why I recommend at least six months in your emergency fund for those purposes. The second way to prepare is to diversify your income. If you're relying on just one income and you lose that income in a recession, then you're in a situation where you have absolutely no income. And now if it's you and your spouse, then you're actually relying on two incomes.

Your income is somewhat diversified. But if you go a step further, and begin to invest in assets or build side businesses that would be able to fund some of your expenses, then you're going to be in a much better situation than 99.9% of people out there. And some things that you can look into is investing in, say, real estate. Now, real estate market may go down in terms of the price of homes, but if you're investing in real estate for cash flow within rental properties or any other type of asset that actually produces cash flow each month, then you're all gravy, baby. because you don't have to worry about appreciation or prices,

you're worried just about cash flow. The other assets would be starting small online businesses or other side businesses that may be somewhat recession-proof. And you can look at things around your hobbies and things that you love to do every single day to create a side hustle around your interests because that's extremely important for you to have enough passion to be able to pursue it

after a long day of work or during the weekend. The third thing that you can do is if you're in the market to make a large purchase and you see the writing on the wall you think there's a recession coming. Now again, nobody knows when it's coming, but if you see indicators that there potentially could be a recession coming,

wait just a little bit. And you can wait a couple months just to kind of see what happens, but you want to just wait it out a little bit because the last thing you want to do is buy something big, say like a house at the top of the market. Because you're going to regret that decision

for the next 10 years until you get enough appreciation to be able to sell your house again. And if you are making a big purchase such as a house, just make sure it's something that you can stay in for at least 10 years, because that's usually how long it takes for a market to correct after a recession. And the same thing goes for other big purchases like cars or anything else of that nature. You don't want to take on too much debt just before you think there's a recession coming.

Now, the fourth thing that you can do is to make sure your emergency fund is intact with at least six months of living expenses, and we just talked about this. But again, this is a major component. So you're going to be saving a larger portion of your income and having that cash to back you up. And if you feel more comfortable with a longer runway and a longer time horizon, then go ahead and do that. If you want eight months or 10 months or a year of expenses, then go ahead and save that much. Six months is not a magic number. It's not.

It's based on your stress level and how long you think it's going to take you to find a job when times get tough. Because when times get tough, it is much harder to find a job. The demand is higher and the supply is lower. So you have to figure how long will it take me to recover? And if you're married and have two incomes, you can figure how long will it take me to recover for one of our incomes or you can figure the same number for how long it would take to recover for both incomes. But having your emergency fund is to relieve stress and relieve anxiety for you

so that you can carry on with your life without having to suffer. Now, the fifth thing you can do is eliminate or pay off all of your debt. So if you're in credit card debt, go ahead and pay off those cards because if a recession comes, you don't want to have additional debt hanging over your head. Or if you have a car loan that you're about to finish off the payments, go ahead and pay it off if you have the extra cash to do so, or accelerate your payoff plan so that you're able to get rid of that debt and move forward with higher cash flow so you can save more money. The sixth thing you can do is try not to time the market.

Try not to just pull your money out of the stock market when you think it's too high or when you think it's too low. Just continue to invest and stick to your plan because trying to time the market is a fool's errand. Nobody can do it. Nobody can predict what's going to happen to the market. And the more and more you read about investing, the more and more you realize this. You just understand that nobody can time the market. Nobody knows what's going to happen. Not Warren Buffett, not Bill Gates, not Jeff Bezos, not Mark Zuckerberg. Nobody knows what's going to happen. And that's what you have to understand when investing. You continuously invest when the market's up and you continuously invest when the market's down. And the last thing you can do is remove treat yourself from your

vocabulary if you think a recession is on its way. Don't spend on lavish luxuries you don't need. Sell the stuff that's cluttering your house. Just get rid of it. Get some extra cash because less clutter will free up your mind to be able to make good spending decisions. Now let's get into how do recessions happen so you have an understanding of how this potentially could come about. So how on earth do recessions actually happen? And a lot of people like to complicate this question. They like to say crazy economic metrics and they like to bring in different investments and they like to bring in all these experts to talk about how a recession actually happens. To put it simply, recessions happen when a bunch of people lose confidence in unisoned very quickly.

You're going to hear a lot of speculation and Wall Street wackos are going to jump on your TV. and proclaim that stock market, housing market, will go up forever and ever. But you don't have to listen to that fairy tale because it's truly when a bunch of people lose confidence in unison very quickly. And you can see a lot of trends if you look at past recessions on things that do happen prior to the top, prior to when right before the recession actually happens. And there's going to be a lot of people buying investments because they think it'll go up in value forever and ever and ever.

and this is known as speculation because like I said over and over again, nobody knows what's going to happen in the market. So you're going to see things like the mailman will have hot stock tips or the guy down the street just bought 10 houses on credit or Uncle Rico who could throw a pigskin a quarter mile just bought a minor league football team. But he makes $8 an hour. And what's happening is everyone is getting free money from banks

and the balloon is inflating more and more and more. And then all of a sudden the balloon begins to deflate. And a large portion of the market can panic. So a lot of people will panic at the same time and they'll start to sell things off. And a lot of times it's because they're emotional. A lot of investors are emotional. And if you keep emotions out of your investing, then you're going to do much better than the majority of investors out there.

Even if you don't know a lot about investing. So when everyone begins to sell, then banks begin to panic. And this causes businesses to not be able to expand, which leads to layout. offs. And that's how this cycle can spin downward fairly quickly because it's a chain reaction downhill. But like I said, the way to think about it is when everybody loses confidence in the market in unison. Now, talking about how recessions happen can be somewhat of a downer. But I've got great news because recessions are actually full of opportunity, investment opportunity in particular. And if you're lucky enough to keep your job or you're smart enough to actually prepare for the

recession, then you're going to be in a fantastic position. You know why? Because everything is on sale. Warren Buffett has a famous quote where he says, whether it's socks or stocks, I like to buy things on sale. And I agree with Warren, whether it's socks or stocks. I also like to buy things on sale. Because when the market goes down, it's time to treat yourself. Houses are on sale so you can treat your self. Shares of Amazon and Apple are on sale, so you can treat yourself. Index funds are on sale. treat yourself. But keeping those emotions in check and realizing that you need to continue investing and you need to continue your investment plan is the key to truly making more money in the market and truly beating market returns. Now, most people cannot beat market returns,

but most people panic and when the market goes down, they sell. And if you do this, you're going to lose money every single time. You're going to have terrible market performance throughout your entire investing career if you decide to stel every time the market goes down. But most people continue to do this. They have the head knowledge, but it's very difficult in the moment to maintain your investment plan. So one thing I like to do, and I've heard a lot of other financial educators also talk about this, but I like to write up a short blurb of my exact investment plan.

And this is something that you can do, especially if you think that you are triggered emotionally when the market goes down. Like if you see the market go down and you're invested in the market and it goes down, say, 10%, and you can feel your heart start to flutter and you start to panic, then you definitely need to consider something like this because a lot of highly emotional people will lose a lot of money by selling when the market dips. When in reality, you're supposed to buy low and sell high. So when the market dips, you're actually supposed to buy more because you're buying things

on sale. And trying to sell stocks on time or trying to sell stocks at all as a fool's errand. because if you look at the market over a long period of time, say over 30, 40 years, you're going to see a lot of dips, you're going to see a lot of times where investor confidence was lost, but it goes up and guess what? It goes up higher than it did before. Now, I can't guarantee it's going to do that forever, but as of now, it has. And it continues to go up every single year, even after a recession, when it dips, it may be down for a couple of years, say 50%, and you just have to be prepared to lose 50% of your money

and stomach that and not sell and not panic and not take it out and maintain your investment plan so that when the market goes back up, you're going to make more money than you had before. And if you continue investing during those down years, you're going to see astronomical returns on that money that you invested while the market was down.

Investing with your emotions is for suckers, but if you have a plan in place, you're going to be able to beat market averages, beyond what you ever thought you could. And one thing we want to remember is that money is a tool. We don't need to be rooting for recessions because recessions leave the turmoil

in a lot of people's lives. And most people don't prepare. And that's part of this message. That's part of what I'm trying to promote is to teach people how to become powerful with their money. Because preparing for incidents like this allows you to keep your family safe

and to empower yourself with your money. See, too many people think that money is a game. But money is a tool. It's not a game. So when you're trying to trade and day trade and do things that you don't understand completely, then you're treating money as a game. And it's not. Money can create freedom for you so you never have to work another day in your life. It's an extremely powerful tool. And the most beautiful part about money is that it's a tool that can create freedom, but also allows you to give to others. So if a recession hits, now you're the giver and

you can help out other people instead of becoming the helpless and having to take from other people. You can actually help out your friends, help out your family in times of need. And it's a wonderful thing to be able to do that. So understanding that those who are patient and make the right choices today will build wealth again. You have to start getting ready. And I don't know when the recession's coming. It could be next year. It could be in five years. It could be in 10 years. And if anybody tells you that they know, tell them to lace up their nikes and get to step in. Because nobody knows the answer to that question. But I do know one thing. And by buying investments on sale is the fastest way to accelerate your wealth.

So hold on to your fancy pants. It's going to be a wild ride. Thank you guys so much for listening. And if this is our first time meeting, consider subscribing so you never miss an episode. And hey, we're giving away a free one-on-one money coaching session with me. All you have to do to enter is subscribe to this podcast and leave a rating or review on Apple Podcasts, then send it over to Andrew at dollar after dollar.com, and you'll be instantly entered to win the one-on-one, one-hour coaching session with me.

Again, thank you guys so much for listening. We truly appreciate it, and we'll see you on the next episode. Have a great day. Rosen lasagna, medium power, 15 minutes. Sounds like Ojo time. Let's play. Feel the fun with Play-Ojo. The online casino with all the latest slot and live casino games.

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