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Anne-Lyse Wealth: This is the Dreamers Podcast, episode 99. Today is December 6th, 2022. there's been so much back and forth about whether we are in a recession or not, and I think if anything, that's our cue for us to start preparing and acting as if resources are scarce.
As if job opportunities aren't, around as much, and, just move accordingly.
So I decided to chat with two personal finance experts, a real estate investor. basically come down with a few. Guidelines to follow if we want to essentially make the best of an economic downturn.
Anne-Lyse Wealth: Hello. Welcome to the Dreamers podcast. I'm your host Ann Wealth, and I'm so happy that you're here with me for the 99th episode of the Dreamers podcast. when I first started this journey as a podcaster, my goal was, Do it consistently for a year and release an episode every week and I can't believe we are now on episode 99.
So I have been releasing an episode every week for 94 weeks, and I just wanna take some time to, first of all, thank you for tuning in today, and if you've been here since the beginning, Man, I'm beyond grateful that you're still around, that you're still tuning in, and, I really appreciate you if you're new, if you're discovering the podcast, I am so grateful for you as well, There are so many podcasts out there and I'm very, thankful that you decided to listen to the Dreamless podcast. A few weeks ago, I released an episode. It's episode 81 if you wanna go back and listen to it on how to prepare for a recession. And I got some, great feedback from you all, and I decided to take it a step further and do a part two follow up episode on how to manage your money during a recession.
Listen, the jury's still out, whether we are in a recession or not, depending on where you are, on who you're talking to. But there's been so much back and forth about whether we are in a recession or not, and I think if anything, that's our cue for us to start preparing and acting as if resources are scarce.
As if job opportunities aren't, around as much, and, just move accordingly.
So I decided to chat with two personal finance experts, a real estate investor. basically come down with a few. Guidelines to follow if we want to essentially make the best of an economic downturn. And the first one is reassess your expenses and increase your savings. We keep hearing about the importance of having an emergency fund.
Some people will call it a life happens fund to protect you in case things happen, right? that will prevent you from having to tap into your long-term savings, or even worse, the money that you have invested to face those, short-term circumstances. that can be anything from losing a job to an unplanned expense that you have to incur.
It could be an unusually large car expense or a home repair that you didn't plan for. It could come in so many different ways, but the more prepared you are, the less of a financial burden it's going to be for you. And so when things are very uncertain, The more money you have saved up in your emergency fund, the more financially secure you are going to be.
really, I think this is a matter of how comfortable you are, but also a matter of the type of job, uh, that you have, whether you are a one income household or to income household. But at this time, Anything below six month is definitely on the riskier side, but also, you don't wanna have too much cash saved up because that is taking away from an opportunity to have that money invested.
So, I wouldn't necessarily go above, a year or 18 months cause some people still wouldn't feel comfortable with 12 months. So you decide what you're comfortable with, but also always keep in mind the opportunities that you would lose from, having, too much cash saved up, or sitting in a, you savings account.
And also the additional risk that you would incur by not having. Saved up, as you reassess your expenses beef up your emergency fund, another thing that you can do is really start looking. What you spend your money on and determine whether it makes sense for you to eur those expenses.
Right now, during times where we take a closer look at our expenses, maybe some of the subscriptions that you currently have that you don't really use, some of the extra, money that you typically spend on, I guess non-essentials you might want to consider cutting back on.
the point of that is it will help you increase your savings so you would have more money saved up. if you wanna take it a step further. If you're too income household, maybe do what you can to start seeing if you can live off of one income or if you can reduce how much you spend of the second income.
Again, the goal is to increase your. The number two, tip is to invest in things that increase in value over time. So those are called assets, And in times of uncertainty or doing recessions, it's good to have a 10 year outlook. Minimum five, but really 10 year outlook, meaning that any money that you take and invest, you know, that it might take 10 years for you to be able to really see the return on investment because of the volatility that is associated with, recessions or economic downturns.
If you've been paying attention to the stock market, there's been a lot of volatility. it's up, it's down. But currently a lot of people are pulling back. They're afraid of what's happening, but this is actually the perfect time to invest. So continue to invest. Don't worry about the volatility.
Continue to invest, consistently. Without paying attention of the short term movement of the market. And you are guaranteed to come out of this, on top if you have a 10 year outlook. But if you wanna be even safer, one of the personal finance expert that I spoke with said is historically, Since 1957 when the s and p 500 was created, the s and P 500 is basically an index.
500 of the largest, uh, companies in the US. and that's something that you can invest in. So when the s s and P 500 was created, the market has been returning close to 10% yearly on average since 1957. The market is going to go up and we'll see downturns over time. But in times like today, the market is on sale.
It's a great opportunity to consider investing more in good companies with a long term strategy because you're buying the stocks at a lower cost basis. now is not the time to pull back in or, take a step back and not invest. Now is the time to invest. Continue to invest. Don't worry about the short term, and it will be.
A great long term wealth building opportunity for you. I also talked to a real estate investor who started investing in the last recession, and one thing that she shared is that at the time, she lived in the property and eventually rented it out, and currently the real estate market has cooled off, and you definitely have to be more careful when purchasing properties.
She reinforced the importance of running your numbers but running your numbers not under the best case scenario, but under the worst case scenario and making sure that if you're buying rental real estate properties, you would have cash flow from the property, so that you will not only build wealth through the fact that the property will appreciate over time, also because.
You are running your numbers under very conservative approach, not the best case scenario. Considering that rents might go down and even if they do, looking at all of your expenses, repairs, maintenance, and what it would cost for you to, hold onto the property, you would still. Have a positive cash flow, meaning that you would bring in more income than the actual cost to hold, maintain pay taxes, and every expenses associated with having that property.
the pro tip here is that investing is a long term play. China to be deterred by the short term movements of the market dollar cost average, or invest progressively in the stock market instead of all at once, that would be very valuable during challenging economic times. Another expert that I spoke with said when we are in a recession, it becomes even more important to continue with dollar cost averaging, which allows you to keep putting money in the market and autopilot things so that you're not constantly worried about what the market is doing.
If you can stick to a plan and automate your investments, you're less likely to constantly checking your accounts and seeing the up and down movements of the markets. That's, Chloe Daniels of Chlo Bear Money Coach. Tip number three is make sure that you diversify your investment. Let's, take the stock market, for instance, if there is a good company that you believe in.
And you see that the stock price is down, it might be tempting to go ahead and dump a bunch of money into that one particular stock, but that is not, a very good thing to do if you want to diversify your, investment, So when it comes to the stock market, especially for beginners,
A low cost mutual or exchange traded fund that tracks a market index such as, earlier I mentioned a s and p 500 or a total stock market index is probably the best place to start. That is assuming that you don't have a ton of money just laying around and you can put big chunks of money in a bunch of different companies across different industries so that you can be diversified.
The index fund will give you. Diversification at a much lower cost. What's great about an index fund is that it will not only give you diversification, it will also give you passive management of the fund, Because When the fund that you invest in is actively managed by a human or a hedge fund manager that comes at a cost.
So the expense ratio for that fund or the amount that it would take for you to have the fund. Which that's called the expense ratio would be higher than if you went with an index fund, which is by definition passively managed. Cuz it's just tracking an. and so the lower the expense ratio, the higher your returns.
I do wanna say that yes, you can diversify your investment by picking individual stocks, but it's a more complicated exercise that would require a more significant investment. If you're ready to start, you can open an investment account or a brokerage account at a low cost brokerage firm like Fidelity, Vanguard, M One Finance, and there are many other options that is obviously assuming that you're already investing in your tax advantage investment accounts like 401k four, three B, rough ira, and so many others.
As a reminder, when you're buying Low cost. Well diversified index fund. You are betting on the entire market as opposed to trying to pick an individual stock or a specific company. The stock market is one area that you can invest in. You can also invest in real estate as mentioned earlier, as long as you run your numbers and do your calculation or your math, and it works even under non-ideal economic situations, you can also always invest in yourself because you are an asset and the more you invest in yourself, the. You will, be able to generate income that you can then use to invest in other assets. So the key thing here is to remind yourself not to put all your eggs in one basket and make sure that you diversify your investment.
Number four, you should leverage tax advantages. There are a lot of tax advantages available when you invest in assets. whether it's the stock market real estate, for instance, in the US you have retirement accounts that offer tax benefits like 401K four three B 4 57.
With these accounts, your contributions are deducted from your income to calculate how much you should pay in taxes, In other accounts, Rough ira, rough 401k, your investment grow tax free until retirement. There are also tax deductions for owning real estate property and the possibility to defer tax payment on real estate profits.
If you had 10 31 exchange, there was, a podcast episode, that I did few weeks back with, uh, a Tia Blair, a real estate investor. and she talks extensively about how she's been able to accumulate wealth and build a portfolio of, almost 60 real estate properties using the 10 31 exchange.
So that's episode 84. If you wanna, find out more about it. Chloe SLO Bet Money Coach says Taxes are our biggest expenses. so if we can legally save money on taxes, why wouldn't we? Many people don't want to invest in retirement accounts because they think it locks their money up until retirement, but there are so many ways of getting around that legally that you do not need to worry about that.
Right. Instead, worry about getting as much money as investors as you can. A lot of people who are listening to this podcast are in their younger years of earning. They're probably making the least amount of money that they will ever make. And if you can fund a tax bill now by investing in rough accounts and get tax free growth for the rest of your life.
Words of advice from Chloe Daniel. So when you use tax advantage accounts, whether you lower your tax liability upfront or you decide to invest in rough accounts and basically, pay the taxes upfront, but then in the future, um, your investments, will be tax free or you do a mix of both rough accounts and non rough account.
whatever you decide, make sure that you leverage tax advantage accounts and tax deductions because that will considerably help you reduce your overall tax liability and accumulate more wealth. So in recap, if you wanna come out of financial downturns or a recession winning, Here are four things that you can do.
Number one, reassess your expenses and increase your savings. Number two, invest in things that increase in value over time. Number three, diversify your investments. Number four, leverage tax advantages. , and of course there are other things that you can do, but these are just four tips to get you started. I think the most important thing to remember in, challenging economic times is that you can prepare and actually take advantage of these challenging times by increasing your income, your cash reserve, investing progressively and consistently.
If you do. You will likely come out on the other side in a much better and stronger financial position. If you like this episode, you can't read the full the article is called How to Manage Your Money During a Recession, and it's in the Harvard Business Review, ascend if you enjoy this, I always love to hear from you guys, so reach out to me.
I hang out on Instagram most of the times. I would love to hear from you. So that's it for today. Next week is episode 100. Can't believe it. I'm looking forward to seeing you then.