All right, let's face it. There has been all kinds of things going on in the media about the economy, the jobs, the interest rates. The Fed's dropped interest rates. What does that mean? Is there this thing called a soft landing? Is it going to be a hard landing? Is there a recession? And so what I want to do in this episode is kind of break the, God, the media hype around all this and just give you some truth and some real perspective. Because,
look, is there going to be a recession? The answer to that question, honestly is yes, there is going to be a recession. We just don't know when and we don't know how deep and we don't know how long. And I say yes because recessions are just part of the, the economic cycle. They come and they go. And so we can expect that there will be one. Will there be one because of the
interest rates, because of inflation? I don't know. But let's just talk about what a recession is, why it matters, but really why it doesn't matter and what you can do about it and give you some specific principles to not only navigate recessions, but to navigate in general, building wealth, having financial freedom, and living a rich life. All right, so let's do that. Here's the thing. A recession technically, is defined as two consecutive
quarters of economic decline. So, meaning that our GDP, the gross domestic product, the economy, shrinks over a six month period. Businesses slow down. Unemployment typically rises. So in a recession, what ends up happen, happening is that you have a shrinking of the economy, you have consumer confidence that that starts to drop and people start to get scared and they pull back spending. So, and companies will start laying off or tightening their, their belts. That's kind of
where, where the recession plays in. Now, do I think that we're going towards that? I don't, I don't know. We've, we've, uh, we've got a good jobs report. The, the Fed's dropped the interest rate. Uh, you know, we've got an election year. So who knows what's going to happen with that? The market is at all time highs. So rather than get so caught up with, oh, my God, what is happening? And I
have to do something. Let's understand how a recession can impact wealth, but more importantly, what you need to do to make sure that you are not exempt, maybe not even immune, but not as impacted as others would be in a recession. Cause I'll tell you right now, I built a tremendous amount of wealth during the 2008 recession because when you understand the principles that I'm going to teach you here and the processes and the frameworks, you'll see how this starts to play
out. So let's just look at it from this perspective. How does a recession impact your wealth? Well, for individuals like you and I, a recession could mean job loss. When companies tighten their belts, they start cutting people, they cut labor and they cut market. That means that it could impact our income, lower income. And at the same time, you will typically have a decline in asset values. Your portfolio, your investments, your 401k, all that stuff starts to decline,
starts to decrease. Even your real estate values can go down. So it's a time where the uncertainty starts to drive the mental state to a point of some people will actually panic when. And what that is, is panic is an emotional response. And when emotions come into your financial decision, we typically make bad decisions. When our emotions go up, financial intellect goes down. And this is not an insult because, listen, we're all susceptible, susceptible
to it. I am. It's how I got in the Ponzi scheme. My emotions went up, I had this aspiration. They ran on and I was excited. I thought, oh my gosh, I'm retired, I'm going to be making all this money. All the emotions made me make bad decisions. I ignored my rules, I ignored the criteria that I teach you, I ignored all of that and end up wiping out one third of everything I own. So the challenges with the recession is more the emotional impact, the fear, the panic, the media talking about it.
And we start to make bad decisions like selling stocks and getting out, sitting on the sidelines and not participating and dipping into our savings prematurely and trying to cash out of. I did that and it cost me dearly. Like millions of dollars dearly. So before you start to go, that when you feel the emotions welling up, I want you to come back to this episode and I'm gonna break it all down for you to avoid. Avoid that. To make sure.
How do you make sure you're secure? How do you make sure you're safe? How do you make sure you thrive? Because here's what I know after three plus decades of doing this, being an investor, an entrepreneur, an advisor, helping families build wealth and sustain wealth, including in my own family. The biggest thing is this. While recessions, and this is the truth, while recessions bring challenges, if you're following the right financial habits now, if you're not sure about the financial
habits, one place to get them, I'm going to be honest with you. Yes, it's a shameless pitch, but my book building your money machines. USA Today bestselling book. I give you the frameworks, the process, exactly what I did, what I do for my clients, it will break it down for you. But when you follow the right financial habits, it won't matter what the economy is doing, whether it's booming or whether it's in a downturn. And you sit back and go, well, how can it not?
Well, is it going to impact you? Yes. But the fundamentals of sound money management that are working for you, they work in any economic environment. If you only have a plan that works in an up type of economy, and that's it, it's a bad plan. If you have a plan that only works in a down type of economy, then it's a bad plan. If you have a plan that only works in a sideways, stagnant economy, then it's a bad
plan. There is a way to follow the fundamental money management, wealth creation elements to allow you to sustain and thrive and build no matter what is going on in the economy, okay? Because there are principles that are timeless regardless of the market. So let's just talk about them. Okay, the first is this. I'm going to just talk about some core wealth management principles, whether you're in recession or boom or
bust, and really start to break that down. The first, and let me jump to the iPad here, is that the first is this is diversification. And what I'm talking about is two levels of diversification. One is to diversify your investments. This is a key principle in reducing risk in any market condition. If I put all my eggs in one basket and, and that one goes bad, you lose it all. Okay. Diversity diversification is about mitigating the risk and protecting your
wealth. So if I have a basket, it's why we do mostly at the beginning, especially low cost ETF and index fund investing, because I'm in a basket of 3000 or 500 companies, good companies. Now, are they always going to be good? No. So one, two, half a dozen might go bad, but I still have 500 more that are doing well. And so what you're doing is spreading the risk out over the different companies, so you are not impacted as much by doing that. So diversification is huge. Now,
I said that there's two types of diversification. The first that I just talked about is your investments. The second type of diversification is your income. Okay? Is making sure that you have multiple sources of income at your disposal to cover you. Because if one source goes away for whatever reason, even in my situation, when I got diagnosed with cancer, I stopped speaking, I stopped getting on the road, I stopped doing some of the things I was doing so I could focus on healing and everything.
So there was an inca element of my income that went away. But I had other income streams that didn't require all my effort and all my work that kept coming in. So I had a diversification of investments and a diversification of income that allowed me to sustain myself. And so that's, the first piece is diversification. The second piece of this is to make sure that you have, we call
it a peace of mind fund. In chapter twelve of my book, this is an emergency fund, what other people will call an emergency fund. But in chapter twelve of my book, I walk through something called the wealth priority ladder. This tells you exactly what to do with every single dollar that comes into your, into your hands, so you can put it to use in the most effective, efficient way possible, to build safety, to give you growth, to give you tax advantage, and all of that. One of those elements is
having, having a, what I call a peace of mind fund. Other people will call it an emergency fund. It is crucial for your financial security. If you have no liquidity, you are beholden to. If something happens, the only way to cover it is going to debt. Debt is the death knell for your wealth and your financial freedom. When it is debt that is done on an emotional basis, because
you're stuck, you're in a panic, you're in fear. Having liquidity in an emergency fund, put it away in a high yield savings account. We tell our people that it's somewhere between 918 months. Based on your age, stage and circumstances. It's not three to six months. It's more than that because you need the space to operate. And so when you have that liquidity, put it in a high yield savings account. Right now you're getting between four and a half and 5%. I actually saw one at
5.17% recently still. So even though the interest rates have come down, they're still up there enough that you're taking, you have, have a place where now I get, people are going to say you're going to lose money on your cash. You got to remember that your money, each dollar has a job. The job of the emergency fund or the peace of mind dollar is your peace of mind. It is liquidity, it is safety. It isn't wealth creation, it's wealth protection. And so it has to do
its job, let it do its job. So in both strong economies and weak economies, life will always happen. And as it happens, having liquidity will give you two possibilities. One, you have the opportunity to sustain yourself if you lose a job or market turns against you or things like that, you're not dipping into things or going into debt. But two, the second thing that it does give you is it gives you the liquidity to take advantage of opportunities that might present themselves during a
downturn. So that's one of the things that happened in 2008, is that all of a sudden people were unloading real estate or they were unloading companies. Stock prices went down, there was an opportunity to buy, and the people that were able to take advantage of it are the people that had liquidity. So I want you to have the emergency fund, no matter what's going on, okay? The third thing to think about is to cut non essentials. And, and this, this is
non essential spending. Now, I'm not. I have never been one that says don't spend. Okay? I just want you to do it consciously. I want you to be aware, I want you to be intentional. I want you to do it the right way. So, having a cash resource plan where you know where every dollar is going and for what purpose, what's the job description of it allows you to do the things that give you the richness in your life. When I do a money money
machine master plan for my clients, we build it all out. I know what their assets are, I know what their liabilities are, I know what their income and expenses are. They see it, we build it out and we run it out. 30 years. We have this system that allows us to stress test it and run a thousand simulations. What happens when the market goes up? What happens when
the market goes down? But the point is this, if it is non essential, in other words, you're not getting value out of it, you don't need it, why are we spending it? Put it away. So be what. The tendency is that when things are going well, we get fat and happy and we are sloppy with our spending. I don't want everyone to be sloppy with our spending. I want to be on top of it. So every dollar that goes out is intentional and not unconscious.
Okay, so subscriptions, memberships that maybe we're not using things like that to, to help out. Now, number four is debt. Get as much out of debt as possible. Not having debt is a burden. Now, I'm not one that says all debt is the devil. I think that there is, there is productive debt and there is destructive debt. Destructive debt is for consumables. Destructive debt is your
lifestyle. Destructive debt is. Is to try and live a life beyond your means and put it on a credit cardinal productive debt is something that's going to produce additional cash flow or wealth. It could be a mortgage on a rental property. It could be Facebook ads on a credit card that you're going to get an ROI on and that kind of thing. So what I want to do is make sure that you're on a debt pay down plan to get out of the destructive debt, at
least at first. And if you're not sure how to do that, I want you to go to melabraham.com no debt and get my debt breakthrough calculator. Put all your debt in. Ill walk you through how to get out of it to make that happen and really start to drive that. So you get out of debt because the less debt you have, if the market turns, the less burden you have on your financial well being.
Number five, and this may sound or feel a little odd, maybe, but number five, is this upskill, okay, during a downturn or during even a growth spurt, the more skills you have. We live in a value exchange economy. I know some people might sit back and say, well, I should get paid more because I've worked for ten years doing this. No, you actually shouldn't. I hate to tell you, I hate to break the news to you. You will be paid and
compensated based on the value of the solutions you provide. And the sooner you can grasp that, not only will you be in a better place, but you will be in more control of your financial destiny and to continuously improve your skillset. The value you can provide to a solution or problem, to a client, to a marketplace, to a job, the more invaluable you become to your customers,
to your employer, to all of that. So you want to make sure that you are constantly growing your skillset in a way that makes you invaluable to those you serve. Because when they go to potentially cut, they turn around and say, oh, they're invaluable. We're not cutting them. Or when they're in a growth spurt, in a good time, they're going to, they have more capabilities. Let's give them more. Either way, you win by upskilling your value
and your skillset to make that happen. All right, now there are some things to consider as you start to move beyond this, and there's opportunities for that also. And I want to break
those down. And the first is this is to realize that although your portfolio should work in uptimes, boom and recessionary times, you may see some opportunities that exist during recessionary times, to shift the portfolio structure, the portfolio makeup, to take advantage of things that are booming in those times, you might be able to buy discounted assets, for instance, value investing and things like that that will grow over time. There are bargains that come into place. And so
I'm not saying to just set it and forget it. And we never do that with our money and our investing. So we may actually look deeper into the investment strategies to tweak them based on what is happening in the market. But here's what I want to be really clear on the, I am not saying to time the market, because you can't, as much as someone might say, I know the ups, I know the downs, and I can make it happen. Well, statistics
show you can't. Even the bigwigs, even the big hedge fund traders, statistics show that the managed hedge fund traders with the best equipment, the best algorithms, the best information, the best computers, the best analysts, the best of everything, cannot, in the long term, beat the market. So don't kid yourself in thinking that you can. Okay, just don't. It just so. But are there nuances and changes and shifts that you might,
might, might, might, might, might, might, might think about? Sure. Do you shift from large, large company stocks to medium company stocks? Are there opportunities in real estate? Those kinds of things, but always, always follow the Walt priority ladder in doing that. And because I think during these times, you'll find we live in a, especially in the US, we have an innovative culture. So when there is an opportunity to innovate, to create efficiency, effectiveness, there's an opportunity
to grow. That's an investment opportunity for you. So being really clear of how that plays out is important. I want to just hit on a couple of long term wealth principles that always apply, no matter what. Before I close this out, hopefully, you're finding this of help to you. But the first is this. And this. God, this is a huge one that I think, and I made this mistake myself early on. And that is this one is stay the course. Here's the tendency, oh, my God,
market's going down. Get out of y'all. If you're in a roller coaster and you just crested the hill and you're just coming down and you're feeling that, that wind in your hair and the exhilaration and everything's turning inside, is it the time to get out of the roller coaster? No. No, it's not. And statistics have shown that, literally, if you missed the ten best days in the market, ten best days in the market, you will wipe out 50% of your return.
And seven of the ten best days in the market followed the worst days in the market. What does that mean? You gotta be in the market. You cannot be on the sidelines, you cannot be in the stands. You have to be in the game, on the field, playing the game to win. So your job is as an investor and someone that is trying to build financial freedom is to look long term, decade or more, 94% of the time, decade or more, the market is up. Okay. We don't. We stay them, we stay the course, we
evaluate our plan and we stay to the plan. If you don't have a plan, you need a plan. It's why I do the money machine master plans. So you know what you're doing and you're focusing on it and you've tested it, stress tested and all of that stuff. So. So this leads to the second one, which is very similar, is now timing the market, because you can't. You just can't. It's just not possible. There are economic cycles and the tendency is that you're going to
get in too late. So you missed out on the growth and you're going to get out too late, and you've already taken on the pain, and in the end, you lose on both ends rather than staying in the game. Now, are there times to do short term investing? Yes, but I am differentiating this and saying we are talking about a financial freedom path, which is long term vision. Stay in the game. Now, the third is this. It sounds common sense, but a lot of people don't. Don't do it. Spend less then you make. I
mean, it's. Yeah, it's basic, but why aren't people doing it now? Spend less than you make. That doesn't mean put it on a credit card. That means spend less than you make. Have. Have a surplus at the end of the month, at the end of the week that you can put to use for you to build a financial future. I was looking at a budget of someone. They make $1.1 million a year. Do you know I looked at their budget. Oh, my God. At the end of the month, they have less than $500 left. At the end of the
month, they have less than $500. They're doing 1.1 million in salary a year. They got less than $500 at the end of the month and they only have 40,000 in the bank. That is a disaster waiting to happen. Because if this person loses their skill, loses their ability to earn, loses their job, they've got nothing but yet they make this, they have this lavish lifestyle and it looks great and they make a lot of money. Spend less than you make. Follow the finance the wealth priority ladder to make it
happen. Okay? And then the last kind of principle, that is long term wealth principle to think about is this. Only invest in what you understand. If, if you don't understand it, you have no business investing in it. Simply put, if you don't understand it, you have no business investing in it. It's how you're going to get hurt. I didn't completely understand the investment that I was getting into. That turned out to be the Ponzi scheme, and I got hurt. And I got hurt badly.
Now I've recovered. The point being is that your first investment should be in financial literacy and understanding. If you want to invest in real estate, then do what you can to understand it. Read the books, follow the. Follow the training. Now, I'm going to tell you, beware of some of the stuff out there. Look for the bias. Someone might be trying to sell you something or whatever. I don't sell investments. I don't sell insurance.
I want to sell you on your dreams. I want to give you unbiased, direct information to give you guidance. Okay? But the fact is, is that too often we relinquish responsibility for our investing in our financial future to a professional and we allow them to do it. It's a mistake. I'm not telling you to be an analyst and this sophisticated person, but I am telling you to have a fundamental understanding of everything that you are getting investing in so you don't get caught like I
did. All right? These are the things. It doesn't matter whether the recession's coming or not. You follow these, you'll be all right. You follow these, you'll be safe. You'll follow these, you'll grow. Now, does that mean that you'll always grow? No. You're going to go up and down just like everyone else, including myself. But whether you're in a recessionary time or non recessionary time, the principles of smart money management are fundamentally the same.
Now, during economic growth, you're going to have a lot more growth. During economic decline, the growth may be smaller or leaner and everything, but when you focus on managing the risk, focus on liquidity, focus on stability, follow the wealth priority ladder so you have safety first, growth second. These principles will allow you to grow. I hope that this helps.
I hope this dissipates a little bit. Any kind of angst, anxiety, uncertainty that maybe is being put into your life through media, social media, and some of the fear mongers that are out there don't fall prey to it. Their job is viewers. Their job is advertisers. Their job is ratings. Their job isn't to protect
you. That's what I want to do for you. All right? I want to give you stuff that will help you out and navigate because my job is to empower you, to educate you, and to equip you for your path to financial freedom. That's what this show is about. All right? I hope that this helps. I hope that I get a chance to see you on the road and in another episode. If you have anything, do me a favor, let me know. Leave me a comment. Make sure you're subscribed. Make sure you're sharing this. Let's
do this. Let's get the message out there. Let's walk this path, path together so we can light the path to financial freedom for each other. Because I believe that financial freedom is your birthright. Let's go claim it. All right, until I get a chance to see another episode, another show, as I always say, always, always strive, live a life without lose you. Thank you for listening to the affluent entrepreneur show. With me, your host, Mel
Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent, an entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.