Another Recession Is Coming

You can learn more about that business at iselerfinancial.com, and if you have a question about money or personal finance please send it to me by visiting Iselerfinancial.com/podcast and I'll answer it in a future episode. Have you read the financial news lately? Oh boy. No news is good news, right? Even if you've just scanned the headlines this year, you've probably noticed people discussing the dreaded R word: recession.

Inflation has cooled a bit, but interest rates still remain high, and there's all of this turmoil around tariffs, and if left unchecked, that could be a bad combination for the economy. Now, longtime readers of my Keep It Easy newsletter know that I think financial forecasts are complete bullshit. Nobody can predict the future, but that doesn't stop people from trying, nor does it stop other people from believing them.

But one thing I know we can count on with extreme certainty is that another recession is coming. It will happen. And the one after that, and the one after that one too. Even though no one wants it to be true, recessions are just part of the economic cycle. They are as unavoidable as they are unpredictable. So while I don't know exactly when the next recession will happen, I am completely confident that it will happen eventually.

And if you remember the episode about making financial plans with an up and down income, you know that when something is unpredictable but inevitable, you can make a plan for it. So what is a recession? The technical definition is a significant decline in economic activity across the economy, usually measured in terms of gross domestic product, called GDP, which is the total value of goods and services produced within a country.

In everyday language, though, a recession is simply an extended period of time when the economy isn't doing well. Businesses make less money, people might lose their jobs, and it's harder for everyone to afford the things they need. It is basically a tough financial time for a whole bunch of people, companies, the country, or maybe even the whole world all at once. And despite how much planning goes into preventing them, recessions are actually fairly common.

According to investopedia.com, which is a great resource by the way, the US has been through 14 recessions since the Great Depression ended about 84 ish years ago, which works out to an average of about one every six years. So are we on the verge of the next recession? Well, it's been about 16 years since the so-called Great Recession ended, and if they historically happen about every six years, that means the odds are not really in our favor.

So if we know that another recession is inevitable and that we're actually kind of overdue for one, what can you do now to prepare? Here are four ways that you can build financial stability and security before the shit hits the fan. Number one: build an emergency fund. Everyone should aim to keep enough money in an interest bearing, fDIC insured cash account- in other words, a savings account- to cover at minimum three to six months worth of essential expenses.

Knowing that you're covered for the next three to six months if you lose your job or experience a serious financial setback can be the difference between navigating a downturn in relative comfort or total panic. And a healthy amount of cash can also prevent you from taking on extra debt or selling investments at the worst possible time, just so you can cover your bills.

And if you have an up and down income, I would suggest bumping that target up to six to 12 months worth of cash in a savings account. Number two: reduce your debt. While it might not feel like a big deal to carry a debt balance right now, it will quickly become unmanageable if your income slows or even stops.

Focus first on high- interest debt like credit cards and personal loans, rather than high balance loans like mortgages and auto loans, since these high interest debts can become a significant burden during tough times. I really recommend focusing on reducing or eliminating high interest debt as much as possible at all times, but especially if you're trying to toughen yourself up in the face of a potential recession. Okay, number three: understand your spending.

We all pay for things or experiences that are nice but not necessary, and that's totally 100% fine. Everybody does it. I do it. It's cool. But understanding the difference between the nice to have expenses and the need to have expenses becomes essential during a recession. So which expenses could you cut if necessary? Which other ones could you reduce?

Knowing the minimum income you need to cover basic spending will make a lot of decisions easier during a recession and save you a lot of headache. For tips on managing your spending, check out the Low Tech Cash Flow episode I shared a few weeks ago. And the number four way you can prepare now for an upcoming recession is to invest appropriately for you. Here's a super common and super unfortunate investing mistake that tons of people make.

They way overestimate how much risk they can handle when the market is going up and up and up, then they way underestimate the appropriate amount of risk when the market drops. And that results in lots of people buying high and selling low, which is pretty much the textbook definition of what you don't want to do. So ask yourself, how confident are you that your investment mix matches your time horizon and your risk tolerance, even if the stock market were to drop radically?

If your answer is anything less than total confidence, then now is the time to review your investments to make sure you have the right stuff in your accounts. Holding the right mix of investments can help smooth out those rough patches and actually reduce the downside when the market drops, and that will help you avoid selling at the worst possible time. Okay, so those are four ways that you can prepare now for the next recession.

Remember that the key is to make yourself more resilient and flexible well in advance. A strong cash savings, lower debt exposure, a clear understanding of what you do and don't need to spend, and owning investments that match your risk tolerance and your timeline can help you weather the bad times and open up new possibilities during the good times.

I am confident that any and all of those strategies will help you be better prepared for economic uncertainty and improve both financial stability and security. So when the next recession comes, and it will, remind yourself that this is just something that happens every so often. It's not fun, it's not comfortable, it sucks, but it's also not uncommon.

And because you're such a smart person and you listen to this podcast and you prepared in advance, you know that you're in the best possible position you can be in to get by in a lousy economy. If you're curious about your current financial wellbeing or looking for potential weak spots that could use your attention, go ahead and send me an email at podcast@Iselerfinancial.com.

I'll send you a link for some free resources that can help you get a better handle on which things are going well, which areas need your attention, and the most important conversations that you should be having around money. Okay, that's it for today. Next week I'll be talking with my old buddy, Christian f Fredrickson. Christian was one of the founding members of the band Rachel's, which was the first band I ever toured with as an audio engineer over 20 years ago.

He's a violist, a composer, and for the last several years, he's also a teacher at MIT. Christian has been a good friend over the years and it was great catching up with him, so I hope you'll tune in for that one. The Thing We Never Talk About is for educational and entertainment purposes only. It's not legal, investment or tax advice.

People on the show, including myself, may have interests for or against any investments discussed, so do yourself a favor and don't make any decisions based on what you hear on this or any podcast. If you have a money or a finance question you'd like answered in a future episode, please visit Iselerfinancial.com/podcast. If you like what you hear, please like and subscribe to this show wherever you get your podcasts.

And you can get my insights on money and more delivered directly to your inbox by subscribing to my Keep It Easy newsletter at Iselerfinancial.com/newsletter. Thanks so much for listening. I appreciate you.