Prepping for a Looming Recession #503

bit about prepping. So he lives up in New York and as we're talking with him, he talked about keeping some water on hand or like like a certain amount of water like in his apartment, which is something I guess I think I would do that. I guess if I live there in New York City when there's you know, like millions and millions of people packed into a very very small geographic location, and then you have less room in your apartment to store. So you're like, what all

that story? But you're right. He said he had a mask ahead of time when nobody else in New York. Yeah, So I'm like, man, respect like, major props to Nick for being slightly prepared. I mean, he's not like by any means an actual prepper where he's got meals or anything like that. Like we don't even have I mean we to know of we didn't get that far with him, but that's that's true. He's like in the walls, this

is where this is where I keep my zombe. You want everyone to know where he keeps his can goods and all of his all of his gida. I could I think I've mentioned this before, but I feel like

I could see himself getting into that a little bit. Um, not because I necessarily think it's something that's going to happen, but just because it seems kind of fun, you know, just to be it's I mean, and we're gonna get to this during this episode, but just to be able to kind of flex your muscles a little bit and be like, Okay, if something were to happen, if it

were all to potentially hit the fan, I would be prepared. Uh. That's what we're gonna talk about when it comes to a me not necessarily that everything is about completely good own hill, but that if it were to happen that you would absolutely be prepared. That's what we're talking about today, and specifically Joel's gonna give his take on as to exactly when the recession is, it's gonna start, when it's gonna end. I'm gonna give you I've got my crystal

ball out here, and i will give my predictions. Well no, but there are a lot of people who are giving their predictions right right now, Mattain, and so I made us want to actually talk about this today because if you read pay attention, if you read newspapers, if you are on Twitter or whatever, you've probably seen the R words start popping up in your feed and you're like, uh, when where what? Huh? I thought things were going well and with the economy, So what the heck are we

talking about a recession for? Well, we'll get into that in this episode. That's right, man. So we'll get to all that here later on. But first, a quick little story to share with listeners and our family. We are looking at a new house, uh, and specifically we so we put an offer in on this house. It got accepted, So that means work technically under contract now at this point a feat in today's market, that islation. That is

very true. Um, However, here's where things gets sticky. That thing didn't fully a praise, which is also not surprising given you know the rapid increase in home prices that we've seen here in Atlanta over the past year. We've seen an average increase of twenty percent. Likely this particular house has seen somewhat less of that. But regardless, it didn't fully a praise, which means, you know where I'm gonna go with this. There's a gap there that you

gotta that you gotta come to the table more money exactly. Yeah, there's a gap between the twenty percent that I was that we were looking to put down, uh and what I have to put down now. So I thought we were gonna, you know, have to just come to the table with a little bit more money. But then I was talking with my lender and he specifically said that, hey, you could always consider p M I, and I was just like, dude, private Morgan Insurance, not for me. Have

you listened to how the money that's for losers? Check out my show? However, even though that's something that we wouldn't normally recommend, uh, this is a situation where I realized that it could make sense because specifically it seemed like it was gonna make sense maybe for two reasons, one of which I asked him to shop it around and he was able to find p m I that was only going to cost sixty dollars a month, which

is pretty affordable. And then secondly, he said that they would offer a lender credit, so they were going to chip in fift undred dollars towards closing costs, which that would effectively pay for our p m I for two years. And so what that means is that at the end of that two years, then I'm gonna have to pay for that p m I myself right basically out of out of pocket. Uh, that's not a cost that has

essentially kind of been subsidized. But by that point, there will be enough paid down on that balance to have reached that in equity threshold. And so in this case, I'm not necessarily even counting on the home appreciating even more. It's just a matter of looking at the amortization schedule and seeing that literally, like I think it's actually twenty five months past when we might be set to purchase

the home, we will enter that territory. And so essentially that means we're gonna be able to come to the table with a little bit less money. That's money that we will be able to continue to invest in the market or put towards other goals or other projects that we might have in mind. So I wanted to share that because this is just one of those situations where the general rule of thumb like that we do often

talk about here on the show doesn't necessarily apply. Yeah, it makes me think there are a lot of things that we say on the show from time to time, and we're we're talking to a wide range of people who are in a bunch of different circumstances, and we're giving our best advice, and that doesn't mean that that advice applies to every specific situation. It makes me think of we you know, we hate when people take out loans for vehicles. Buying a new car and taking out

some sort of five six year loan. It's not ideal, and if it's an even longer loan, it's even worse. Right, But if you have the cash on hand to pay for that car and you can get a zero percent interest, right, well, that that changes the game. That's basically like it's it's in my mind, is sort of like a credit card with a yearly statement, or like it's like, hey, this statement doesn't actually hit for like two or three years,

and so our views are subject to change. We've recently talked about how our views have changed a little bit, at least when it comes to how those by now pay later things work on on websites when you're checking out, And the same is true for certain specific situations where the numbers pan out differently than they normally do. So p am I typically isn't sixty bucks a month. It's usually quite a bit more for most can be a

lot more, and not everyone gets offered a lender credit. Right, But if all the if it all lines up and the numbers make sense, then like a general piece of advice that we do give, and like we would still give, we we don't we don't want you to pay an additional fee. Essentially, Like that's how I view p m I. It's just like man, even just the principle of it,

I still don't like it. But at the end of the day, when I look at the numbers, I'm saying to myself, oh, this actually makes a lot more sense for me to go ahead and do this, even though it's going to be difficult. I mean, I feel like I'm kind of confessing here on the podcast that I will likely have p M I for the next couple of years. I guess if we go through with buying this house the Scarlet letter, Matthew, that's what it feels like. But specifically, I'm willing to say that because at the

end of the day, what do the numbers show? And the numbers show that it makes sense for us to go ahead and accept and eat this feed because essentially it's getting paid for by the When I took out a loan on my niece on Leaf, I felt like a fraud. I was like, who am I? I've never bought a new car, I've never had a car loan like I had, like some one of those existential moments, like some cognitive business between what you've normally said but then versus what the reality is showing on the ground

with the number exactly. But when it comes down to it, you gotta look at the numbers and you gotta look at the reality, which is like, well, if you could afford to buy that car anyway, and you can do more productive things with that money than it's not a bad idea. Yeah, it's exactly. You have to leave room

for that new once. So we have the money on hand to where we could come to the table with the full In this case, we're choosing not to similar to just like you, like you could have paid cash for that vehicle, but like you said, zero percent loan, Like that is something that is worth considering because okay, what else could I do, especially to if you're going to have that money set aside? Uh, you know, maybe you're going to beef up your your reserves a little

bit more, your emergency fund a little bit more. That still keeps you in that strong position just in case something were to happen that you could quickly eliminate that. Oh the unique and quirky world of personal finance. There are so many things to consider. But I'm glad you you shared one of those coqurks with us today because it's something that I think we can we can all learn from and apply to our personal situations. Absolutely. All right,

let's move on. Let's mention the beer we're having on today's episode. This one is called ironer all barish duncle. I think I pronounced ever on. I might have mispronounced every single one of those words. Just now, No, you got the Dunkle part right, Uh, well, this is a Bavarian dark logger. We'll give our thoughts at the end of the episode, but for now, Matt, we're talking prepping for a looming recession. And when I was thinking about this episode, I was, I was, I don't know. For

some reason, it made me think about backup actors. And I never actually really did any acting myself. Did you Were you in the drama school place. I was not a drama kid. Okay, well, uh, it just made me think that the person in that role, the person who is the backup actor, they have to they're the understudy, and they have to be prepared like they were going to take the stage that night, right, like they're gonna let's say they're preparing for the main role in like

a Shakespearean drama. You better prepare like you're actually you're going to be the person there on stage, even though the greater likelihood is that you're going to be sitting on the sidelines, right, And if you only halfway studied let's say the lines, so you didn't really put much effort in at practice, then you're not going to be ready to shine in case the lead actor gets sick.

Or injured. And so yeah, while there's a chance you might never perform in front of a crowd on this specific production, you better prepare like you're gonna be out there every single night four weeks to come. And so yeah, I think of recession prepping the same way. You know, are we gonna see a recession next year? Well, I

don't really know. There are predictions going around saying that we will, we might or might not when we see one in the next five years, we could, um, But whether we do or we don't, we still need to prepare financially as though we're going to And just like that understudy, you want to make sure that you're ready just in case, because yeah, flooding half your lines because you didn't prepare adequately, that sounds that sounds pretty stressful, exactly. Yeah.

So the reason we're talking about this today again is because there's a good chance that you are hearing these rumblings, you know, these musings from the expert. It is out there that we might be in for a bumpy economic ride. I mean, not just the United States, the whole world just feeling this way. Deutsch Bank, they just put out a warning that were likely to see a recession next year. In a recent Wall Street Journal survey of economists shows a massive upward trend in the number of folks who

are predicting in upcoming recession. And it kind of reminds me to you of the joke that economists have correctly predicted thirteen of the last four recession. If you call them often enough, eventually you're gonna be right. Yeah, meaning that, like the R word, it just gets overused. Even still, it is something worth talking about because one of the current signs point directly to this possibility, and that's the

inverting of the yield curve that happened recently. You might have seen that in the financial headlines recently as well. UH and the FED it will continue to raise rates in order to try and calm some of the inflation we've been seeing. This adds more risk. But what is it that you need to do. That's what we're talking about here today. We want to get granular on this topic.

We want to give some specific steps that you should take in or to be prepared whether we enter a recession territory in a month or maybe not even for another decade. Who does that's right? So I think that it's an important point to make, Matt that that we're

not necessarily going into a recession. Right. There are all these predictions, there are more headlines, there's more consensus around the idea that we might be closing in on a recession, but it doesn't mean it does not guarantee that it's inevitable exactly, and so there's no need to freak out. That is not what this episode is trying to do is to get you to to freak out in stockpile food for the next two years because you know, in your root celler Nick mcjulie style, because he doesn't actually

do that. I think I gave him a hard time on that episode too. I feel a little bad about that, but we had a good time. But yeah, while these predictions are being thrown around like hotcakes, that's not that's not really our jam. We're not going to make any predictions here. We don't we don't know, we'll we'll claim uncertainty. But a friend of the show, former guest Morgan Housel, he tweeted the other day and I thought this was just a brilliant way of saying he said, we're definitely

heading towards the recession. The only thing that's uncertain is the timing, location, duration, magnitude, and policy response, and so aside from all of those things, this will happen exactly. So basically, yes, it will happen one of these days. It's just we don't know when, where, how it's going to come about. And it's still worth being prepared for her because historically we do experience a recession every five

point nine years. And then that brings up the question, I guess, Matt, people like you've been using this word recession a lot now early on the show, what does

that mean? You know, we had to define terms when we did crashes corrections in your Reaction episode, So let's talk about that, because a recession is is when the economy hits a rough spot and stops growing and and we're officially in recession territory when that happens for two consecutive quarters or for six months total, and and you know, it's it's often that you don't know that you're in

a recession in the middle of it. You you find out based on data at the end of it, and you can kind of extrapolate or assume or or predict, but it's hard to know really until the event is

actually is actually over. Yeah, you know, it's not unlike someone trying to time the stock market, right, Like, so, I remember having a conversation with a friend who is an investment advisor back in this is like yeah, nearly ten years ago, and after a couple of years of amazing growth, he was expecting for the market to significantly correct.

Like I don't specifically remember if he was saying that we should be expecting a bear market or anything like that, but regardless, he was saying that he wasn't going to be investing until things dropped back down. And you know, like maybe he was able to time the market perfectly back in steen when things corrected a little bit, when the market was down like only about I think it

was about ten percent. But if you would have stopped investing back in when when we were having this conversation, you would have missed out on over growth during that period. You know, even if you had checked your you know, checked your your your rate of growth, uh, in the midst of some of those little declines there. So like aside from that, you would have been up like thirty and if you didn't even get in and you're still waiting for that composing on on over, you know, like

hundreds of percents uh in in in growth. Uh And so similar to the stock market, trying to time and to pinpoint exactly when a recession is about to hit is a really difficult and ever, that's right. That's that's why you and I we don't want to prognosticate anything. One, we're not smart enough. And too, we don't think anybody

smart en run enough necessarily to do that. It's uh, it's a fool's Errand but despite our inability to time a recession, in order to optimize things, we think that folks should always treat their finances in a way that that assumes that a recession could happen, and and you gotta treat it with respect. That's right. You gotta know that. Uh, you make hay while the sunshines, right, realizing that negative

things have the potential to arise in the future. And that's because it's not just broad economic trends that impact our finances. Right, the the economy might even keep roaring along, but you might still experience what we would call a

personal recession. You could fall on hard times health wise in your own life or or your spous or or partner has some health issues that arise and you have to take time off of work to help care for them, um some steep medical bills that you have to pay for, or your monthly expenses might dramatically increase or or even matt take with with rents going up across the country, someone might have a personal recession where their rent went up two dollars a month and they weren't prepared for that,

and so these are the kind of thing that you can payment. Exactly, that's a big increase in your monthly expenses. And so these are the kind of things that it's it's not just a macro level recession that can impact you. It's all these micro things that happened along the way. You could lose your job, you know, effectively eliminating the majority of your income altogether. And so basically, you know, a personal recession that specifically affects you and your family

could come at any time. And you know, even if the American economy continues to crush, continues to cruise along, even if wages are up, unemployment is low, it's wise to be prepared in your own life, in your own family to make sure your personal finances already for whatever comes. That's right, But the question still remains, what should you be doing in what ways should you be preparing for an upcoming recession, whether it happens in the next year or the next ten years. We will get to all

of that right after this break. All right, we're back. We're still talking about processions and the possibility that one comes in the near future. There's a chance, there's a chance, there's a definite chance. And it's like it's sort of like, hey, you're gonna die. It's like, oh my gosh, well, yeah, I guess we all die eventually, right, Like it will happen at some point. We don't know when, we don't

know how. Yeah, And we still want you to get term life in church just in case, because even if you're thirty two and you know, the actual aerial tables show and your current health standing shows that there's a really it's a really really low percent unlikely. Yeah, it will still happen, exactly, and so it's still still wants to prepare for it. So life in church would be yeah, I think a similar sort of thing. And and there is good news here, Matt. Before if we do enter

recession territory. Fortunately, the American consumer, the American individual is kind of in good standing financially. Overall, Americans are sitting pretty in a lot of ways. One is just to

say I have more cash on hand. Some estimates show that we've got two and a half trillion dollars in excess savings trillion with the T. Yeah, that's a lot that bill and trillion that has been built up during the pandemic thanks to stimulus payments and UH and just people banking more of the money that comes in, and so saving sabit's really changed quite a bit during the pandemic,

which makes sense understandably. So the normal savings right in the US, it's typically pitifully small, and so it's good to see a little bit of a change in in the savings direction. But for the time being, everyone it seems to be keeping that money stocked away. And then this bodes well for individuals and families. If you know, an overall macro recession hits, or if a micro recession hits in your life, having cash on hand is key.

And it's good to know that if a storm does kind of pop up on the horizon recession wise, that people are mostly prepared, they got their umbrella out. For a second, I thought you're gonna say, having cash on hand is king. They're gonna say king, which I don't think that's something we've ever said. King. Cash is king because cash is helpful. Cash is helpful, and sometimes, depending on what you've got going on, having more cash on

hand is smart. But a lot of times oftentimes, uh, it seems that folks, you know, they've got too much cash on hand and they're not investing those dollars. It kind of just depends who you're talking to. But I thought you're gonna say cash is king. But I mean, essentially, like we're talking about some of the different reasons why you shouldn't be worried about a recession, uh that might

be looming on the horizon. And and another one of those reasons, Joel, you just mentioned cash on hand, But another reason too is that the unemployment rate it's almost at three and a half percent, which is essentially a fifty year low. Uh. There are still roughly about two jobs out there for everyone who is looking for a job.

And so yeah, you know, while the labor market it's not perfect, it's kind of been a bright spot economically, and it's become easier for for a lot of folks to bounce to another job in order to earn more money, or you know, even just to ask for a more

meaningful raise from their their current employer. At the very least, it means that most Americans can continue to count on a steady paycheck and obviously having that regular income it's always a great thing, regardless if there's a recession coming or not. Yeah, So, even if the economy cools off, it's well, maybe there's just one job opening for every individual looking for a job. And so the economy has been running so well that just a slowdown that we

might experience might not even indicate a recession. It might just be indicate maybe a return to normal. Yeah. So in another bright spot, mattes consumer demand. Right, So, you know, one of the natural outcomes of lots of cash on hand that I talked about just a minute ago and more cash flowing into people's bank accounts, flowing into their lives is is a willingness to spend more of the money that they've got in That demand is still hot

for so many items. We're talking about houses, cars, travel, you know, all of the demand in those sectors points to the fact that demand is intense and and we're not seeing signs of consumers curving their spending in in big ways, not yet at least, And so in part this consumer demand we're seeing, it's this pent up demand that's you know, finally able to be quenched because COVID has dropped off a cliff and and travel for instance, right this is an area that we we literally weren't

able to spend on uh most of the past two years, and and so folks are itching to get back out there. They're spending their dollars that have been sitting idle in savings accounts, and so I think there is a right spot here that people have the cash on hand and they are saving it, but they're also willing to spend on things that matter to them, and I think that bodes well for businesses right who are looking to hire

and the economy in general. The fact that there are dollars, that there is a thriving marketplace, that that people are engaged in. The average American consumer has a significant amount of optimism right now. Yeah, certainly seems like it's a symptom that points to the health and the confidence that folks have with their financial situation. So we've highlighted the strength of the economy, you know, the fact that things are getting back to normal. Jobs are plentiful, spending is strong.

Let's talk about recessions and what it is that you should be doing right now. Uh. You know, because of the Fed's attempt to rain in inflation, we could see slower growth, which which could halt this recovery that we're seeing. And so even though it remains anyone's guests as to you know, what will actually happen and when that thing will happen, it's important to talk about what you should be doing in order to prepare for a recession. So the first thing that we want to talk about is

shoring up your income. Specifically, we want you to firm up your your position at your current job. So whether that means you are working from home, whether you're working in person, you want to make yourself indispensable. You know, if you feel like you're maybe a little off your boss's radar, it's worth scheduling a chat to make sure that that you're living up to expectations, maybe even seeing hey,

what else could I take on? Like just kind of getting on the radar seeing how it is that you can step up, how you can take a lead in in future projects, because if a recession does come along and you happen to work in an industry that gets hit hard, you want to be like the last person on the chopping block, right like like you want to be the person where that she's like, well, certainly, like I can't get rid of Joel because of you know,

like Joel does this instead because he's really tall. Yeah, okay, he's gonna reach the toilet paper in the break room to exactly. That's what I'm good for. Yeah, you got you gotta keep all those things in Mike. But um, yeah, I think firming up your current job, matt Is makes a lot of sense. Making yourself indispensable. That's good advice. And then another thing to do is is to try to get a raise, um, to try to make more money now so you can be banking more money in

the months ahead. And you know, I know that lots of folks wish that pay bumps were just equal across the board, that you didn't have to fight to get more money, that it was just kind of standard um cost of living bumps plus a little more on top of it. But the truth is that that's not the case,

and and the squeaky wheel gets the grease. And I'm not saying that you should wine and complain or pester your boss for a raise, Like there's a way to do this, and then there's a way that's going to end up in you becoming actually the dispensable person at your job by being too much of a complainer, but pointing out the value that you're bringing to the table

and equating that to a reasonable increase in salary. It's crucial to make sure that you're not leaving money on the table, especially in this environment where employees are incredibly valuable, where the labor market is offering a premium for workers who fight for themselves, who speak up for themselves, this is a great time to increase the amount of money that you're making this right, Yeah, So, like the way I like to view the world, or that I naturally

view the world is I agree, Like I feel like you shouldn't have to be this week wheel, right because in like the perfect world, markets are like perfectly efficient, people would recognize your accomplishments and reward you commensurate exactly, So if like Hey, you are bringing more value to your your boss or to your company, there should be a perfect and equivalent rays to your salary. But the fact is that's just not how the world actually works.

Like it does make me think of the efficient market hypothesis where it's just like all data is available and with the given data that more production is now happening at X company, you should see a proper a proper race. But the fact is you also have your boss or your manager, because what they're trying to do is create as an efficient of a company as possible as well.

And if they can keep you happy while keeping expenses low, well then they win or not, you know, they don't win, but like that then they're they're the ones doing a really good job. And so I guess all that to say, you do have to advocate for yourself and whether that's you know, just being the squeaky wheel or finding other ways to to kind of step up, that's what we

want to see folks do. Yeah, And so I think one one other thing when it comes to income, mac because the first tip you mentioned was sure your income, and I think another way to do that is to diversify your income. So if we're talking about a recession on the horizon, or or even the possibility of you having a personal recession in your life. It's important to make sure that not all of your money is coming

from one place. You know, one of our listeners they recently sent us a message, um And and she said that she's trying to actively monetize her hobbies right now, if only to cut down on the costs of the things that she loves to do. And I loved hearing that mindset, Matt, that she's like she's even thinking about in in just some of those hot hobby pursuits, that she's like trying to make sure that she's not spending

too much or that she's at least breaking even. But having having those multiple streams of income is so helpful

when the economy is starting to contract. Like it always sucks to lose your job, but it's way worse if that's the only income you have, right if you don't have any other methods of making income, making money at your disposal, if you are a one trick pony when it comes to income, If if it literally only comes from one place and that's your your w two job, then we would say start thinking about that now, finding other ways to not only save money, but potentially diversify

the way money comes into your life. That's a that's a smart way to prepare for a recession. Absolutely, man. That is why we're such huge fans of real estate. We're not going to be the ones here that tells you that you know small you know real estate investing, that it's a purely passive endeavor. It does take a little bit, a little bit of time, but way less

than anything else out there. And so this is one of those areas where as you ramp up the amount of capital, the amount of money that you're able to put towards a side hustle, the less time that you're having to to dedicate towards. I see it as like the sliding scale. Like initially, a lot of times, like the thing that is available to anybody, it oftentimes requires the most amount of time, right uh, And oftentimes it doesn't require much money because there's a lot more folks

out there who have time than money. But then as you kind of progress down that scale, the amount of money that is going to be required of you increases, and the amount of time can oftentimes be reduced. Ultimately, you end up with just passively investing that money in the market, which literally requires no time. It's just a matter of getting that money in that investment and then just seeing it grow from there. But obviously to to be able to live off of that it requires a

lot more money. But so, you know, we're talking about what to do during recession, and we kind of talked about from the different ways that you can make sure that you still have money flowing into your life. Let's talk about your expenses, because when you are able to cut down your expenses, then you can keep money from flowing out of your life, right And specifically, I want

to talk about holding off on some big purchases. And so whether you know, we're talking about an expensive month long European vocation, maybe if you're maybe you're really fancy and you're thinking about buying a second home like either way, making a big splash purchase like this that depletes your reserves, it's it's not wise if you're worried that recession might

be on the horizon. Uh, And regardless of what's going on with the economy, these are the types of expenses that you want to make sure that you've carefully planned for and that you've performed your due diligence right not only to make sure that you're getting the best deal possible, but also to make sure that this is an expense that you can easily stomach. You want to be able to absorb these types of expenses in in good or in bad, in lean times or in fat times. Yeah.

I don't think we're saying cancel that plan vacation that you have, but think, think long and hard, like do you actually have the expendable income to take it? Yeah? I mean it shouldn't push you to the brink, but like your financials shouldn't be like just dangling by a thread were YouTube, you know, go forward with whatever it is that you're thinking about. If you're taking money out of your home equity line of credit or put it on your credit card to pay for it, that's a

scary sign. And so we would say back away and wait to take a vacation until you you can keep your emergency fund intact until you can you know, pay pay for it with cash on hand. And you know, another another thing when it comes down to cutting down expenses, Matt is is to save more on the little stuff. And it's funny. I'm kind of the guy who prefers to get the big things right and then not really sweat the small stuff. That's kind of my vibe. Um.

You know. For instance, we we only have one super old car, and that means my transportation expenses are so low. It allows me not have to not have to fixate on the smaller things. And I'd like to live life that way, because otherwise I would be constantly worried about, you know, how much I'm spending with every single grocery store trip, or whether I can afford that additional item I want to put in my card. But it doesn't

mean that those small expenses don't matter. And so yeah, if you have trouble with some of those small expenses and you want to get back to focusing on them a little bit better, there's this app that I was recently made aware of called the flip app f L I P P. Will link to it in the show notes, And so it helps you see all the retailer flyers in one place for that week, so that can help you maybe make better grocery lists, shop the sales so

that you're not overspending on the little things. So you're doing a better job planning out your budget. Specifically at the grocery store, it's help with that, but there's flyers to other businesses too, But being able to see that and all in one place can help you make make better plans. And really, when it comes down to it, yeah, those small things do add up. So finding little ways to save more at places that you shop regularly, we would say, makes a lot of sense. Nice man, I

don't think we've ever heard of that one. Another way that we can often hemorrhage money, UH is through debt payments. And currently Americans say that they are going into more debt than ever to pay for higher costs due to inflation. And so we want to encourage folks to do your best to only carry what what a lot of folks will call good debts. Any debt is inherently bad, right

because you're having to pay interest to a lender. But there are certain expenses where it makes more sense, you know, depending on what you're able to do without money, that that you then free up. Specifically we're talking about like a mortgage, uh, student loans, but not too many student loans. I think that's a slippery slote for a lot of folks. But if you have debt, uh specifically with a variable interest rate, it's really important to start paying special attention

to those credit cards. They're often the biggest culprits here. But the rate on your helock, your home equity line of credit, it's gonna be heading north as well. But we should be looking to pair back on the number of you know, of these different debt obligations that we have now before recession hits, paying off debt it's almost never a bad move, but with a recession potentially looming,

it makes even more sense now. Yeah, the one yeah, I think I would say is just a low interest rate mortgage and keeping more cash on hand just provides you maybe more security, especially with inflation doing what it's doing now, putting more money towards that three percent mortgage makes very little sense. But for the most part, we're

not big fans of paying off your mortgage. If that's something that especially that if you've acquired in the past three years, or if you've refinanced in the past three years, it's right, yeah, because it's still just incredibly low. And yeah, you're you're actually not in a bad position given the rate of inflation. That we've got going on in the country right now. But it's those other debts you're right, Matt, like,

especially credit cards, hometically lines of credit. As those rates go up, it's only going to make those debt payments go up. And so getting on the ball now to start getting rid of your debt makes sense in advance of a potential recession. And you know one other thing that we would suggest everybody um do. It's like an exercise. We would say that all how the Money Listeners should have done is to create a bare bones budget. And

we've talked about that in depth actually back in episode two. Uh, you don't necessarily need to when you do this, to cut your spending to the bone right now, right because you're not currently in an emergency like we're not currently in a recession. You haven't actually lost your job, hopefully.

And here's the thing, it's it's it's never a terrible idea to cut back here and there, even when things are going good, in order to accelerate your your path towards financial freedom, to increase your savings, right, to be able to put a little bit more aside in your wrath or your four oh on k. But but at least, that act of creating a bare bones budget and knowing that you can implement it in order to decrease your expenses at a moment's notice is smart. I think it.

It's such a cool tool because you might say, my month expenses right now are tht but this bare bones budget says I can get by on And so to know that at a moment's notice you can switch over to this other budget and save nine dollars a month. You can switch to eco mode. It's it's exactly, it's it's like eco mode for your car. You can switch over there, start saving gas and you know it's not gonna be as punchy and stuff like that. And obviously you don't want to necessarily move over to that bare

bones budget unless you have to. But having it just the just having created it and knowing that you can do it provides so much peace of mind and and just then the ability to to be able to thrive if if a recession does come along, instead of continue to struggle and finding ways to pare down then in the heat of the moment. And so I know specifically that when I said eco mode, I'm sure you're thinking

about like an electric vehicle, like an actual EV. But did you know, like there's some actual internal combustion engine cars, uh, ice vehicles that would sometimes run on fewer cylinders than it would be like a V eight that could run on like my six cylinders, my sister cylinders maybe has something something like a real sort of eco mode. I don't know if it actually takes a cylinder down. I'm sure that's more like the transmission where it's like, yeah,

it's less sporty or whatever. But there were literal like I think Cadillac back in the day, they had cars, they had engines that on the highway you could switch it over and it would it would literally shut down some of the cylinders. And so it's kind of like a bare bones super fuel efficient way. But that's kind of what we're talking about here, doing you know, with with your money, because once you've got it up to speed, it's like you don't really easy, you're just kind of

you're cruising along, you're keeping it going. Get It reminds me too, like it makes me think of working out. And so if I'm working out, like do I need to be able to squat like hundreds of pounds? No, but I know that I'm now capable of doing that. And that's what a bare bones budget does. It lets you know what you're capable of when the situation arises that I do need to like move some furniture or something like that, I know what I'm capable of. Right,

I'm gonna be more prepared. I'm gonna be less likely to hurt myself too. But that's what we're talking about with the with the bare bones budget here. That's right, all right, But we gotta still talk about what to do with your investments. That's something that people people want to know ahead of time too, is like, well, do I need to change my my investing style? Do I need to you know, reallocate some of my money before or if a recession hits. We'll we'll talk about that

right after this. All right, we're back and we are. Let's let's continue talking about what you're gonna do with your money. We're a recession to hit. Until you asked this question, you post this question, but right for the break, but let's go ahead and answer it. Because regardless of what state the economy is in, we're always going to invest the exact same way that we would normally. That

is specifically and widely diversified low cost index funds. Instead of changing your investment allocation because a recession seems likely, we would rather you have the right investment allocation. Now, it's a good idea to know how much risk tolerance uh you are comfortable with before a recession hits, so that you don't buy, so that you don't sell in a way that locks in your losses to where you

end up losing a lot of money. It's kind of like going to a theme park and you're like, I'm not sure if I like upside down roller coasters or not, but you sit on one anyway, and then you freak out. It's better to know your risk tolerance before you get strapped in, like they have to forcibly remove you from

the ride. Well now, for it's as if you wrote the roller coaster and then you have the option to unbuckle or like hit some sort of a jack button, and surely that would be you know, when you're on the loop de loop or whatever, that would be a terrible time to bail from the roller coaster. It's luckily

that's not that's something you're capable of doing. But you can do that with your investments, and that's that's kind of a terrible thing and a lot of people do end up doing that because they didn't prepare properly on the front end. Yeah, they're not properly strapped in. Uh. It reminds me something that a famous investor, Peter Lynch. He he once said this, and that is that more money has been lost by folks preparing for a recession assuming that it was coming soon, then it was actually

lost because of the recession itself. And man, we we feel that he is totally spot on here. Truly. It's thinking that we can outsmart or get timey right on shifting things around. Those are the bigger things at risk here. Then the recession itself, at least in regards to our specific investment. Makes me think of the story you told earlier about your friend and he's like, I'm gonna wait until the market takes a dip, and it's like, cool, you can try and maybe you'll be successful, but most

of the time you're not. And most of the time people like you said, with that Peter Lynch quote, lose money because they're trying to outsmart. And yeah, I mean a recession, while it might happen next year, and we might see a correction in the market. And that's not a bad thing that it's a buying opportunity for long, long term buying hold investors. It's still not something that you can actively anticipate. You kind of gotta keep going

the course recession or not. You know, over the long haul, the market tends to go up more than it goes down. This so you should continue to buy. And you mentioned the word risk there just now, Matt, and and I think that's another important part of this when it comes to our investing strategy, is is finding ways to eliminate unnecessary risk. And and now is the perfect time to rethink whether or not you want to consider investing, let's say,

into any more speculative assets. Were typically comfortable with no more than five percent of your overall portfolio in your favorite company stock or uh, some cryptocurrency or even n f T like if you if you happen to really love a particular artist. But keeping it small, we would say is crucial because some of those more volatile assets very small, they could see wilder downward swings if a

recession comes along. Uh. It's been particularly easy to misjudge your risk tolerance given the bull market that we've been on for for more than a decade, especially if you're a younger investor and you don't even remember remember the downturn of the two two thousand nine two era, uh and so vanguard, because what are you talking about. I've only seen my investments go up dramatically in value over

the past twelve years. That's right. It's it's been easy to think that, like, well, who saves money because investments only go up all the time. But that's I feel like it doesn't even register anymore because it happened so quickly. It was such a blip. It was such a blip, it was such a quick rebound that it's it's almost

as if and grated. A lot of that was artificially imposed with lockdowns and just the fear of the virus, But it's almost as if there was no lesson to be learned there because of how quickly it did bounce back, or how quickly the market specifically bounce. It's important to know that that those downturns can and are often more prolonged than that, like that that that short lived of a downturn, I mean, that's the most rapid stock Parker recovery we've had in the history, in the history of stocks.

And so Vanguard actually has this helpful quiz that you can take to get more accurate idea of your own risk tolerance. Will put that the link to that in the show notes. But I think it's helpful. It's like eleven questions. And I actually took the quiz, Matt. I wanted to know, all right, what does Vandguard saying my

risk tolerance is? And and they were like, you should probably be a hunter present invests in the stocks because you're totally cool with the risk and they ask you some really good questions and I was like, well, funny enough, Vanguard, that's exactly my allocation. But interesting that you say that.

But you might find out by answering certain questions that your risk tolerance is not as robust maybe as mine, And so you might find that you should have a different portfolio set up in advance of things getting rocky. And and that's better right than hitting that inject button in the middle of the roller coaster, lying uh to strap on really before it even gets started. Man, that makes me think of I think this is like a prank video or something that was fed to me one time.

But it was this guy who got on a roller coaster like next to a stranger. You know, like sometimes you get partnered with somebody and you don't know who's sitting next to you. And after they had strapped in, you know, the things came down over their chests and and like basically the roller coaster had launched, like maybe it had like it started going up the like the big ramp. The guy like reached into his pocket and pulled out like this giant bolt. It was just like,

oh my gosh, what's this. And the guy next toe just like completely started flipping up, which is kind of a mean trick, but like that that's what I picture. That's what I think of when you think about the eject button, because that guy I wanted off before that thing took that massive plummet, afraid that you know, his

restraints were going to be loosened. But you know, like what we're talking about here basically is like some mental preparation, right, Like if you know that you're the kind of person who's likely going to make changes based on some of these day to day news events or even like month a month, right because recessions like it might last a while. You need to make sure that you ingest a lot

less news. Uh. And if you aren't willing to stay in the course despite the difficulty, you likely need to make changes before a recession occurs so that you can stay the course without wavering. But for most folks, though, the best course of action, assuming that you are invested, is probably in action. Right Like, just like with a bare bones budget, you want to prepare. You went to forecast what it might be like in the future, and that what we're doing here with your investments. You want

to picture yourself. You're forecasting you, and you're saying to yourself, if this world had happened, what would I do? Uh? What kind of situation would I be in? You want to place yourself mentally in the future and make sure that you make the changes now while you your feet are like firmly planted on ground that that you're comfortable

with you. It makes me think one of my friends, Matt he for some reason, he has this obsession every time he goes to a restaurant or something like that he thinks, what happens if an active shooter shows up here? And what am I going to do. What's my reaction to be, what's the quickest route of escape? You're talking about me? No, do you do that too? I mean I think about it. I guess it's not something that like,

that's like one of the first things he does. He makes a plan of actually, how would I get out when I run out to the kitchen when I kick open window. It's smart, but at the same time, like, should it completely change your dyning experience? And hopefully that's what you're getting to. It shouldn't change everything about your your dyning experience. I think it's important to be aware

of that kind of thing. Well, it's something that never crosses my mind, and so if it happened, I would be my job would drop and I would have no idea how to proceed. But but for him, at least, like maybe it has gotten to an extreme level, but

at least he would have a plan. He would know what to do, He would know what he was going if if you know, things got Yeah, it's worth thinking through, just in the same way it's worth thinking through you know what a recession might be like and what it might look like for your finances, you know, or your investment portfolio to take a fifty percent plunge, Like, that's where it's worth thinking through, even though you hope that it obviously never happens, and it makes me think that,

but it doesn't at least prevent him from going out to eat. He still goes, but he's always got a plan to bust somebody up in the that it's necessary. But it's like one of the last pieces of advices we want to give on this episode is to don't deviate from your larger plans. I think if that possibility prevented him from going out to eat and enjoying his conversation with his partner or his friends, yeah, that would be tough. It's overtaking his life too much at that point.

And and so I think recessions they can cause people to panic and to change up their strategy. But if you're in the wealth building stage of your life, um then continuing to save and invest the way that you have been up until this point, it continues to make sense. It continues to be the best path forward. Nothing is ever certain for any of us in any given day. No one was even talking about a recession just six

months ago. That was the farthest thing from economist minds from any of our minds, but world events, they've they've created some changes that have made a bumpy economic future a little more likely, and that doesn't mean that it should impact you in any meaningful way aside from the

things that we've talked about on this episode. And in fact, if you could weather a recession well, you'll likely have the ability to buy more stocks, to invest more at depressed prices, which which helping you build wealth over the long haul. So it's one of those things that this potential shouldn't cause you to freeze up, shouldn't cause you to panic. Have a plan, but don't let it necessarily impact the things that you're doing already. Keep moving forward,

keep proceeding towards those goals that are already working towards. Exactly. You don't want it to keep you from enjoying your beer or enjoying your dinner out. Uh, I mean, ultimately, preparing for a recession and just solid personal finance management are very similar. In our book, it's wise to be cognizant of these macro trends at play, but you also don't want to live your life and fear that a recession like that. It's just always lurking around the corner.

Like we said, there's always someone out there predicting doom and gloom. I can name a few, actually, I think what the guy Robert Kyosaki. He's predicting a recession every single year, and you know what, maybe he'll be right one of these years, but he's wrong so many times. But if you listen to those naysayer voices, it's like you're always gonna be looking around the corner and not doing the things you need to be doing because of

the doom and gloom folks. And he's made a living doing that, right, right, But the more debt that you pay off, the more savings you accrue, the less likely that you'll have cause to worry about any of this. Uh, making more of an impact at your job, finding another stream of income. These can also provide some peace of mind as you sure up the amount of money that's

flowing into your life. It's just basically looking at all the different you know, it's like a RESK risk assessment session where you're sitting down and you're thinking, Okay, where's my money coming from? All right, how do I make sure that that's solid? Where does my money go? How do I make sure to plug any of those leaks or that I know if things were to hit the fan, that I can plug up leaks in a certain way. Um, and when it comes to my investing, is that within

a portfolio? Is that within an investment that can that I am comfortable with standing scenes some you know, some ups and downs, some of that volatility. That is what we've talked through today, and hopefully we've given you some good food for thoughts. As we may or they not. It's a recession, but hopefully this gives you a good framework to assess and to analyze what you should be doing with your money. Yeah, alright, one more analogy, one more example. It makes me think of all right, I

went to got that going out to dinner scenario. We got the roller coaster, we got the understudy, um, we got the working out one. Let's keep going. We've got too many analogies during this episode. Now we need one more, and that's for sure, right that's here. Not enough. So this reminds me of just a couple of weeks ago. I got to go to the Master, the most prestigious golf tournament matt in your hometown with a buddy and it was super fun. But we were standing on whole fifteen.

I was standing a whole fifteen with a couple of buds and a ball. A golf ball ended up five ft from where we were standing and in a pine straw or like actually in this like mud pile. So it was like not an ideal place to hit a shot. The guy, I don't want to go too far with this analogy, but he got to move. Move the ball actually a club length away. Yeah, I gotta drop. And and the planning that goes into these guys attacking the golf course, they're reading the green starre out there before

the tournament even begins. He couldn't have predicted necessarily that he was he was gonna end up in this exact spot on the course, five ft from where I was standing while I was heckling him. No I wasn't. I wasn't heckling you don't. You're not supposed to that golf But so hitting it out of the pine straw towards the green, but he's still all of that other planning really came in handy. His shot was incredible, like it was. Everybody else would have hit fifty two branches on the

way to the green. This guy somehow snaked it through everything. It was impressive, but it really is it's all that preparation that came in clutch in a moment of difficulty on the course for this guy. So I don't maybe it's not a great analogy. It's good. He practices, not hoping that he will end up in the rough or end up in some mud, but he practices. So that were that situation to arise, Like that's why you work on your whatever. I don't know what club you used.

I wasn't there, but like that's why he used his wedge, you know, until like like where he was, he's used an iron man he would have to go like a hundred ninety yards through. Yeah, it was nuts, Like I don't know, a hundred nine yards or is that like a four iron something? Um? And so yeah, I mean that's not something you hope happens, but hopefully you have the skill and it's something that you've you've practiced and you've rehearsed in your mind to be able to tackle.

But let's go ahead and shift gears and get back to the beer that you and I enjoyed during this episode. This was an alt battish dun cool. I think that's how the Germans say it, don't. I just kind of made that up, so I will say, so we've never talked about this before. This isn't so it's it's an alt beer. So that's what the alt bearish stands for. And some folks might know that my last name is alt mix, and in German alt means old and technically mix. So what we think the original spelling was m I

K and a mick is up. From what I understand, it's a stage in the beer brewing process. And so if you combine alts, which is old to mick, I mean, what is that? How do you read that? I read that as old, ale and first, and I believe that like brewing beer is just my bones. That might be like my fourth career change my allegens of brewing beer. But this is an altar bearish. Obviously. This is from my dad's side. The Germans, um, I don't look very German, but I look a little bit more like a Korean

from my mom's side. But but yeah, this is a dunkle. Technically, I guess this is a dark logger. But I want your thoughts on this one. Okay, well sorry, I just saw that. I don't know if you've ever had an alt beer on the show before, because I was like, we have, that's a European style. I appreciate the insight for everyone out there to your name a little bit of history there on the Old Man myth, the legend old Ale. I'm gonna call you old Man because you're

old Man. So good man. Well, so this is a beer soum at that you and I we don't really drink very often. I thought it was refreshing. It was light but still flavorful. I think the dark Bavarian lagger is just kind of a clutch style, and it's it's one that I want to ingut more of. So this was a good example. It's kind of a classic example a brewery that's been doing it for a long time. But yeah, I dug it, what do you think? Yeah, totally, No,

it was a great change of pace. This is, like you said, it's not a good it's not a style that we often have, but it was really good. It was novel in that sense. It wasn't the standard New England hazy I PA that we are often fond of having. But this is like one of the classic beers that you often see on the shelf and you're like, what is that? Just looks like some old generic European beer that's been around for hundreds of years blah blah blah,

But it's actually good. I like that we're starting to we're not. It's not that we never branched out before. It's just that there were so many options surrounding us, and we're just like, Oh, I want to try this barrel edge sour. Oh I'm gonna try this, you know, Russian Imperial stout with cocoa nibs and chili peppers in it. But oftentimes it can be good to go back to some of the classics, and I think we've kind of

been doing that a little bit more lately. But but yeah, I really enjoy this one, and we would recommend for folks who are maybe if you're first getting into beer, this would be a very approachable style, right because it's really multi If you like bread, uh, you know, like whole wheat bread has kind of got this dark flavor going on with this, I would totally recommend. Uh this einger a bearished uncle awesome. Yeah, I know this should be on the shelves pretty much wherever you would think,

so it's a nationwide kind of a classic. I think that the Ironer has a few different beers that they brew, but early Doug this one, so all right, it was tasty. That's gonna do it for this episode. For folks who want the show notes for this episode, well you can find those up on our website at how to money dot com. That's right. So that's gonna be it for this episode until next time. Joel, best Friends Out, Best Friends Out,