I feel like a parent who’s about to have the sex talk with their kid. It’s a conversation that we’re all dreading but has to happen. In having a heavy conversation like this one there is a tight rope that the initiator feels like they have to walk. That’s how I feel, but my feeling is that I have to trust my intuition and that now is the time to talk about how to prepare for a recession without all of the hysteria connected to it. As a GenXer I’ve experienced a number of Recessions, some worse than others. And, I’ve discovered a couple of things from my past experiences with them. The first, Recessions always come. The second, the signs start showing up earlier than you think but most people ignore them. And, the third lesson, the more (and earlier) you prepare, the better off you will be. This episode will share 5 ways that YOU can prepare for the next Recession and emerge unscathed (hopefully) on the other side. Please note: the beginning of this show will be tough to listen to. But, it will end on a very positive note.
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Listen to the Show
Show Notes
My mom lost her job during a Recession and that was how I ended up supporting the two of us on part-time Starbucks money and student loans. We survived that experience but I was definitely left scarred from the experience. And, to this day, I would say that I have financial ptsd closely associated with the stress that I experienced during that time. I’v worked very hard in recent years to pay off over $60,000 in debt and I’m in a much better financial situation that before. However, I’m spending some time digging in deep, looking at my finances and figuring out what I need to do to make sure that I’m ok whenever the next Recession arrives.
A Recession is basically is when the economy contracts and business activity declines. Before I get deeper into this episode I do want to make it clear that I’m sharing an opinion and I’m 100% ok if you disagree with my opinions.
Anywho, it has been over 10 years since the Great Recession and many of us in the personal finance space have been speculating behind the scenes about when the next one would arrive. If you spend a few minutes on the web, you’ll find numerous pages that document previous Recessions. And, when you look at them you’ll notice a pattern: Recessions always happen.
Based on that pattern we are WAY overdue for the next one and in my opinion it will likely begin during the last quarter of 2020. Ironically, I’d initially thought that the next Recession would hit at the beginning of 2021 but I pushed up the start date because of something none of us could have anticipated.
- The Coronavirus-and it’s not caused by Corona Beer. In fact, I’m drinking one now. Actually, I’m not because I prefer cider, I’m just making sure you’re still paying attention.
Some things to consider:
- According to a recent Bankrate article and Federal Reserve Bank of New York-auto loan delinquencies are rising. What does that mean? People are experiencing financial challenges and are having a hard time paying their bills. More importantly their car loans. People need their cars to get to work!
- Economic Policy Institute reports that wage growth is low or stagnant
- The American Savings rate has dropped in recent years to 7.6% compared the Japanese savings rate of 27% and the English rate of 18%
- American consumer debt is above pre-2008 levels.
And, now, we have the Coronavirus which has affected the world in the following ways:
- China has instituted a quarantine in several major cities. That quarantine keeps people from going outside and taking part in activities that sustain economies. No one is working in manufacturing in those cities, selling in markets, taking buses, etc.
- Flights are being cancelled
- Supply chains between China and other countries have been disrupted and slowed down.
- Japan has said that all children must stay home from school UNTIL April
- Conferences are being cancelled
What does this mean for you?
- I want to give you an example for those of you who think this isn’t a big deal. It’s Sunday as I record this show. The largest physics conference in the world: the APS conference was due to be hosted in Denver THIS WEEK. They cancelled it on Sunday. That means the following: venues have lost money from events/patrons. Security personnel who work the show won’t be working. Hotels rooms won’t be rented out. By the way, there were supposed to be 10,000 attendees flying in from all over the world to attend. Lyfts/Ubers won’t get that extra business. Souvenir shops will have less business. People will make last minute flight cancellations.
Now, imagine this happening for months. China and Japan’s economies are already showing a decline in economic activity and it’s not rocket science to see why.
Additional Coronavirus American Specific Concerns
Americans are not incentivized in any way to stay home when they are sick. If we have a compound fracture we’ll create a splint with duck tape and pride ourselves on working sick.
Why an Economic Decline will Hit the US Later
- Americans rely heavily on credit and it will take awhile for people to actually feel the squeeze.
- We have a lot of products in the US already so we’ll still have access to what we want…it will take awhile for us to notice the supply chain tightening up as consumers.
- We don’t travel as much as people from other countries. We’re emotionally distant from the experience that other countries and people are experiencing.
What YOU Can Do
To prepare yourself for the next Recession. Because it’s coming, like snow in Colorado. Like rain in Seattle and cold in Chicago.
- The biggest advantage that you have is time. If I’m right (and I really hope that I’m not) if the economy goes into a Recession at the end of the year that means we have 10 months to prepare. TEN MONTHS. That’s a lot of time to focus and turn things around.
- Don’t FREAK OUT-If you freak out, you’ll make decisions that will mess you up.
- Spend some time looking at your overall financial situation
- What are you earning?
- How can you earn more?
- What industry do you work in and how could it potentially be affected during a downturn?
- Travel-Tightening
- Tourism-International=tightening, domestic=potentially increasing
- Education-busier
- International Education-Tightening
- Conferences-Tightening
- Shipping industry-tightening as long as the supply chain is slowed down
- If you’re quarantined how will that affect your work? Can you work from home? If not, how can you earn money from home? Do you have PTO/sick leave that you can used during that time?
- What is your financial and career plan B? Create it now.
- Begin paying down debt carefully.
- Save as much money as you possibly can.
- What are your monthly expenses? Currently my set expenses are $1380 but I’m paying off debt so right now I’m averaging around $1750 a month until the beginning of the summer.
- What are you earning?
- Remember during a Recession there are always:
- People who go out for dinner
- Fun things to do
- Sporting events
- Work to be done
- Sales to be made
- The key is to remember that each time there is a Recession people react differently because of the time that we’re in
Right now I’m looking at how I make money.
- I make money with ebooks
- I sell online courses
- I coach people on help them move from stuck to done.
- I freelance write in a lucrative industry that will become extremely busy during a downturn. In fact, I’ve already noticed an uptick in new client inquires.
- I have sponsors for my podcasts and I’m focusing on offering a low cost marketing option for Colorado local businesses who want to spend on marketing but don’t want to spend a lot.
- I make affiliate income.
My goal is to increase my earnings in all of my revenue streams and to really focus between now and the end of the year. You have the same goal.
- Earn more.
- Stay calm.
- Pay off unnecessary debt.
- Look at your investments.
- Pay your expenses ahead of time. For example, pay bills annually vs. monthly. Or, add to your monthly payments when appropriate. Check to see how those additional payments will be shown on your bill.
- Make thoughtful switches to the financial tools that you use.
- I use Mint Mobile and average $35 a month or $420 a year for phone services.
- I currently use a car share and have cut my transportation costs to less than $1500 a year.
- I grocery shop at Whole Foods/Sprouts/Safeway/Trader Joes I just make sure I use my Ibotta app to save money or the store’s savings app.
- Love yoga, dance, or Corepower? sign up for the studio’s work for class opportunities. Every single studio I’ve ever been a part of has one.
- Focus on opportunities and tune crazy talk out. And, there are a lot of opportunities that will present themselves during a Recession.
Be prepared. Get prepared. You have time!
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