AAR50 - 5 Recession Preparations Without the Panic

0:00The whole point of the news is to get clicks, to get eyes, to get attention to them. And it doesn't give them much attention if they said, hey guys, there's a recession happening. Everybody is going to struggle financially. This is going to be horrible. Unless you actually, you know, have a recession-proof job or something, you're probably okay. You can tune out. You don't need to keep watching. That is not going to get the views. The whole point is for them to be able to say a recession is coming. It's going to ruin your life. You need to listen and hear why. And it doesn't matter what you've done or who you are or what your situation is.

0:27It's going to ruin your life.

0:39good day everyone and welcome back to at any rate my name is evan ray and we are here to help you make sustainable financial changes without breaking a sweat and today again i'd like to welcome back my favorite not a doomsday prepper andrew say there how are you doing today andrew hey how you doing how do you know i'm not like just keeping this in the dl if i'm honest it was just a guess it was just a hundred percent a guess there's no way i could be certain of that you could have hundreds of cans of beans below your house right now for all i know

1:09Evan:well it's a very good guess so congratulations um by the way happy 50th episode which if we do the math on that that means aar is coming up on its first birthday one whole year heck freaking yeah that is weekly episodes how are you feeling i feel absolutely amazing it's that that feels absolutely insane genuinely it it feels like for better for us it feels like something that i've been doing for like three months four months i don't know the time has just genuinely flown with doing that many episodes it doesn't feel like i've done that many um but it has been it's been truly an amazing experience.

1:47I mean, doing this kind of, doing this kind of financial content to help the average person, it sounds, it sounds cliche. I know that if you're listening right now, you think I'm lying. You think I'm making up something to sound good or whatever, but this is genuinely something that, that I love doing and helping people in, especially in this kind of way that can have such a massive impact on somebody's life is just something that, that I love doing. and it's something that I've loved doing and doing this podcast has been by far the most amazing, I guess you could say sort of high leverage in terms of impact way to make that kind of content and it's been truly, truly absolutely amazing and I love being part of the IFB team

2:30Evan:We love having you and this has been so much value add in so many ways that we didn't even expect So it's here's to another 50, right? Heck yeah. Another 50, another 52, another 104. All right. Well, keeping the, keeping the positive tune, what is a recession? Well, we're going to break down. We're going to be breaking down some recession preparations today. But, but the goal of today's episode, and I'll discuss this a little bit more is our goal and focus is to reduce panic and reduce harm. and just keep people calm while simultaneously helping you prepare for something. That's the whole goal with this.

3:16This isn't to say, hey guys, a recession is happening in a month or we think a recession is happening in three months. That is not at all what this is. But instead, this is saying, hey, recessions are a natural part of the financial order of things. And it's important that you're at least prepped for it, understand what it is, how it affects the average person, and some actions you can take to make it much more weatherable and sustainable for you if and when it does come around. So first off, what is a recession? It's, by definition, it's two consecutive quarters where the GDP drops by 1.5 % or more.

3:50So basically, the overall country, the overall United States in this case, is seeing a substantial drop in its overall GDP, and that is continuing for two consecutive quarters. So it's not one, you know, we don't drop overnight into a recession. It takes time to settle into one and to prove that this is a, at least a medium term, I guess you'd say downturn for the overall country. So also some general causes behind recessions, at least in my mind, is economic shock or widespread doubt. So if the economy of the U.S. as a whole is hit really hard out of nowhere, and again, that low point sustains for a while, or there's a ton of widespread doubt about the U.S.

4:31or the overall economy and blah, blah, blah, that people don't want to go out and spend, then that can incur a recession. also stuff like high inflation if that reduces spending if people see well my dollar is now worth 95 cents when it should be worth 97 cents or something i don't want to go buy a new table that i don't really need and so if they spend less than the gdp will drop because there's less cash flow going around and the last one is high interest rates we talked about interest rates recently and one of the downsides definitely of high interest rates is it can make it harder for businesses to grow.

5:04And again, that can easily affect the GDP of the US. Are there any that you think I missed, Andrew? Any other causes?

5:11Evan:You touched on it on the high inflation and how it changes customer behavior. And so how customers feel, or I guess consumers feel about the economy. I know a lot of times you turn on the TV and they talk about the survey of how, what's the, I can't remember the exact phrase, but like customer sentiment. And it's weird that Like just people's feelings about the economy can actually have a huge impact on where the economy ultimately goes. I thought that's kind of weird, but that's just the way it is. Yeah, it's pretty interesting. But you think about, you know, I'm sure that we've all had the thought of buying something and then thought, oh, this isn't the right time for one reason or another.

5:53And for a lot of people, that right time, quote unquote, is going to have to do with the overall state of the U.S. It could be anything. It could be economic, it could be social, political, business-based, whatever it is. If that stops you from buying that one table that would have given X amount of cash flow to one business, think about how many other people think the same thing for that business periodically and then think the same thing for all the businesses around it. It really adds up very quickly when you consider the number of people there are in the U.S. that would be purchasing something and how many little decisions each of them makes that adds up.

6:25um so also why is this kind of want to detail why this is specifically relevant now um again not at all saying that we're going to predict anything just just stating you know current factors that are out there that could impact a recession occurring at some point in the future so currently there's definitely a ton of uncertainty in the u.s i mean there's currently wars there's rising interest rates rising prices social unrest there's there's a lot of reasons and factors that would contribute to making it difficult for people to spend and difficult for the economy to thrive like crazy. And I think we've all definitely felt that, especially since something like COVID, when everything just got turned upside down like crazy, everything bounced back really hard afterwards.

7:09But I would say that even though the overall economy and the stock market and everything bounced back really crazy afterwards, I wouldn't say that the average person feels like everything bounced back like crazy afterwards. Homes are still really expensive. so getting out loans like that because car prices and stuff are still very expensive flights are still very expensive just kind of any decent size spending that the average person is going to do is still quite expensive for them to access things aren't accessible just because you know the stock market for example trends upwards um so today we kind of want to just help tune out a lot of that noise and as always one of my biggest focuses here is always to be actionable I don't want to just tell you, you know, oh, homes are expensive, by the way.

7:50Anyways, have a good day. The goal is homes are expensive. Here's what you can do, you know, to be able to more easily afford one or find a better deal or whatever it is. So all this, we want to be actionable and you'll be able to take away, in this case, five actionable steps that you can do to work yourself into a better situation. And then lastly, I want to detail here the effects on regular people. Because we talk about if the GDP drops by 1.5 % over two consecutive quarters, why the heck does that matter to the average person? Why do you care? Nobody's really going to feel that directly. So the biggest effect is definitely job insecurity.

8:25So if the GDP drops and companies are able to earn less money, then often there's going to be things like layoffs because they say we can't afford to pay as many people as we did previously. We were predicting X percent of profits or X percent of increasing earnings, and we're only going to be getting this. And so we can't afford to pay as many people as we expected. So job insecurity is, I would say, by far the biggest factor. But some of the other factors are portfolio dropping. If companies are trending downwards in revenue and their general wealth, investors are going to be less bullish on those companies.

8:58And so people are often going to pull out of the stock market or pull out of individual companies. And overall, stock market portfolios are going to drop. Also, there's definitely going to be tighter credit. Companies are just not going to be as willing to give out loans to people that they don't feel like have as much money or financial wiggle room to spend on things. And so it's going to be tougher to use things on credit. and also just in general, higher prices. When you go out and about, again, if a company is struggling to make sales, they're not going to be able to afford to give you the same thing for cheaper or the same price.

9:27They're going to have to raise prices to get back to anywhere close to the profits that they were originally expecting. So of those, again, I would say job loss is by far the main threat. And I also want to add that from regular people's point of view, recessions of market drops, they're an expected, normal, I wouldn't necessarily say healthy, but expected normal part of the economy. And they're not something that, you know, indicates a specific underlying issue that was preventable, if that makes sense. They're just something that's going to happen for one reason or another. And that is okay.

10:00And the best thing you can do is to just be ready. But kind of, Andrew, especially since, you know, you watch the news because you're older than me, of course. How would you view the personal effects of recessions versus like how the media, such as the news, frames them? What kind of a difference do you see there?

10:19Evan:And now you're making assumptions about me that are very hurtful and very inaccurate. Go eat a can of beans. All right. So I like 100%. The media frames it in a blanket statement, like as if it has equal effect to everybody and we should all be concerned at an equal level. and I like the way we're framing this, the way you're kind of presenting this is it's going to have a different impact for you depending on how you structure your finances and so if you're structuring them in a way that's resilient, then all the fear and uncertainty and noise, you'll be able to weather that better and it might not affect you as much as everybody else talks about it affecting people.

11:09Evan:So I love being actionable, being proactive and giving yourself that resilience because, sure, we could all lose our job tomorrow and that's 100 % just a reality of being in our society. But you can do things to be ready in case it happens that don't include a Costco shipment of beans. In my case, it would be, I don't know, the floor below. I can't even think of what that's called right now. Yeah, yeah, yeah, yeah. We call it something different in North Carolina, and I'm blanking on it. Really? I've been here for 11 years. Is it Crawl Space? Yeah, yeah, yeah, Crawl Space. Ah, Crawl Space. Okay, gotcha.

11:54I don't have one. Oh, okay, that's unfortunate. Well, then where do you keep your beans? Just in the dirt? Shut up. You just bury them. X marks the spot. There's some beans down there. But I love how you frame that, too, because, you know, So the whole point of the news is to get clicks, to get eyes, to get attention to them. And it doesn't give them much attention if they said, hey, guys, there's a recession happening. Everybody is going to struggle financially. This is going to be horrible. Unless you actually have a recession-proof job or something, you're probably okay. You can tune out. You don't need to keep watching.

12:26That is not going to get them views. The whole point is for them to be able to say a recession is coming. It's going to ruin your life. You need to listen and hear why. And it doesn't matter what you've done or who you are or what your situation is. it's going to ruin your life just the same as it is everybody else. But that's just with everything else, that's blanket not true. And it all depends on other factors, a lot of which are in your control ahead of time. So the first of which is to prioritize and understand job security. Like we talked about, job loss is, at least in my opinion, by far the biggest lever that a recession has to have a financial effect on you.

13:04I mean, that is your income source. That is your livelihood. And if that goes away, then you don't care if a can of beans, you know, increases by 20 % because you just don't have the income to go buy anything, regardless of its increase in price or staying same in price. So this will definitely affect some jobs and industries a lot more than others. It'll really vary by how essential your job is. So, you know, if you work in healthcare, if you work in, you know, the automotive industry or engineering or somewhere that is just going to keep going sort of regardless of what happens. And obviously people's discretionary spending is always going to have some effect, but it'll have a much lower effect on places that are just going to have to keep running regardless of what happens.

13:46And I would say that, of course, an actual part of this would be if you're in an industry that you think during a recession might see a significant slowdown or a significant drop or something, I could tell you we'll go switch jobs to somewhere that is more recession-proof. but I would just say that that is not well that is something you could technically do that is a lot easier said than done and that can have a lot more widespread effects than just switching industries maybe the industry that you're in even if it's not very recession proof is the best paying industry that you could possibly be in or it's where your degree is or something like that so I think that it's just kind of an easy cop out to tell you we'll go switch to somewhere that is so that's definitely not the angle that I want to take the angle I want to take on instead is simply identifying and understanding how recession-proof your job is.

14:33And honestly, that step by itself, I think, is a huge help, just knowing and understanding, because it would be a lot more dangerous if, say, a recession was potentially occurring or was already occurring to not realize that your job could be greatly affected by a recession and just tune it out and ignore it and not take any actions or any preparations because of that. So I think one of the best things you can do is just understand how recession-proof you think your job or career is. And on top of that, trying to determine, especially in that career path, what skills you might have or what skills you can develop that would make you harder to cut or easier to hire.

15:13Because going through a recession, even though a company might do a ton of layoffs and do a ton of job cuts, they're not going to fire everybody. They need the company to keep going. They need some people to continue working to have a business to come back to. by the time the recession is over or whatever. So what you want to do is make sure that you are one of those people that they look at and they're like, well, we can't cut them. I mean, to get through the recession, we're going to need them to be there. So the best thing you can do is understand, okay, my business or my career path is not very recession-proof and it could greatly be affected.

15:44So I need to develop skills X, Y, Z that will keep me around and make me too valuable to get rid of or make it very easy to go get hired somewhere else even during a recession because I'm that helpful to people. And Andrew, I kind of think you have a unique perspective of this, of running your own business. How do you think about job security, especially during something like recession, when you're running your own business? I think you put it spot on about providing as much value as you can.

16:16Evan:One of the things about running your own business is you can get into a false sense of confidence if the industry you're in is doing really, really well. And it's ironic that it took me a while to internalize this. Ironic because how much I study stock market and businesses in the stock market. What you see in the stock market is an industry will go really haywire and then you get all this competition to flood in and want to take some of that. And it's the same when you're running your own small business. So if you are doing really, really well, maybe think of that as a signal that competition is either emerging or it's coming soon.

16:59Evan:And because of that, you want to always focus on providing as much value as you can because that's what's going to be a differentiator. It might not be a differentiator when everything's going up and to the right because everybody's kind of profiting, rising tide lifts all boats. But if you're the one who provides the most value you can, when things, you talked about, recessions are normal. Think of it like the waves of an ocean. The tide goes in, it goes out. When the tide goes out, to quote Warren Buffett, you got to be the one who's providing the most value and that's going to give you the best security as much as you can reasonably control.

17:40Evan:That's what I would say. I think there's parallels to that, like you said, in your job. If you can become that indispensable person at your job, how do you do that? You provide value. Yeah. Yeah. I kind of see it as not. I don't know if you agree or not that having your own business or at least partial ownership of a small business or something like that, all of those effects are the same, but just amplified. You know, in a normal job, you need to provide value, but you don't have to provide the absolute most value because there's a little bit more structure to things. But with your own small business, if you stop providing value out of nowhere, then everything can just drop to zero if you're not providing value to people.

18:20100%. Yeah. Yeah. Beautiful. So yeah, best thing you can do, just be very, very valuable to your small business or to a company if you work for one. And that will make it much harder for you to see too much of an effect during a recession. So moving on to number two, though, the next step is just having a budget. And I would caption that by saying, even if nothing changes yet. Again, I hate easy cop-outs. I hate blanket statements that sound good on paper, but are not very feasible for normal people. So when I say have a budget, I'm not saying, okay, and then go out and cut your spending in half so that you can save a crap ton for a recession.

18:57I know that's not doable for most people. So that's a frankly useless piece of advice. So I think the first step is just having a budget, being able to visualize what kind of levers you have to be able to pull of what you can and can't cut and by how much you would be able to cut them. You know, for example, we talk a ton or people in general talk a ton about subscriptions being an easy lever to save some money or, you know, help your budget or whatever. And while that's great, and that is absolutely factually true, if you only subscribe to two places and that's 20 bucks a month for you, if you cut those, that is a very small lever for you.

19:32easy to pull but it's not going to throw very far and and but if you put down on your budget oh subscriptions you know it's 20 bucks you're going to look at that and say okay that's not even really worth looking at and you'll move on very quickly instead of thinking well you know everybody told me to cut my subscriptions and i did that why can't i save a ton of money and it's like because you were hardly subscribing to anything um and again that's going to vary person by person but what a budget does is basically when the rubber meets the road when when a recession occurs or when financial hardships hit, you're going to have a budget to look at and know factually, you know, at least within approximate dollar values, where all your money is going and where you can and can't cut and by how much you would be able to.

20:12And that allows you to see what levers do I have to pull and make actual financial changes when you need to. So if a recession comes or is coming again, you sit down, look at your budget and say, okay, well, I'm actually spending a lot more here than I think I need to, or okay, it's nice spending here. You know, maybe, maybe you've been buying premium groceries, you know, for more expensive grocery stores or something like we'll do that time to time for sure of, okay, we know we could get the very similar thing a lot cheaper for half the price here, but we really like the quality of this place.

20:41So we're going to double that. And we could look at our groceries and be like, oh, we're spending, you know, 500 bucks a person. We could easily cut that down to 350 and suddenly 150 bucks a month per person adds up to 300 bucks total. And suddenly we're moving more meaningful levers than we would be if we had just, you know, said, well, groceries, we need to eat now. We'll look away from that. We need to eat. So that's, that's fine. A budget would make that a lot more transparent for you. And the last thing I would say is look at your budget. And a good thing to do is just calculate a bare minimum.

21:11So if you just needed to get by, you know, if you just shopped at the cheap grocery stores and, but you know, you need to get by, you have those fixed expenses. but you cut down all of the erroneous spending and any savings that's going anywhere else, how much could you just live off of? And that'll give you a great dollar value so that, again, if the rubber meets the road and you have to make tough financial decisions about going to get another job that's going to pay you less for the time being, you already know approximately what amount of money you would need to make to get by safely through that.

21:41But Andrew, where would you cut back if you had to if a recession hit? I think the easiest one is

21:48Evan:well yeah I might be going to the beans actually cutting back on the Uber Eats you know I get lazy I don't want to make a lunch so you know going out and grabbing something quick at Chipotle those are probably the kinds of things I would cut first how about you I think food related stuff would be similar for me also people know that I absolutely freaking love my coffee and I'm a coffee nerd and I spend money on coffee. And if, you know, a recession were to hit, or if I were to, you know, lose my job or get, or have a big pay cut or something like that, I'm not going to go buy, you know, specialty roasted beans for coffee anymore.

22:29You know, I'm just going to cut that down. Um, again, food related, I would definitely try and drive less that sort of stuff. There are definitely some subscriptions that I could cut back on that aren't completely necessary. Uh, but yeah, those are the kinds of levers that I'd be looking at, but I think of food, food and coffee is the big ones probably. That sounds, I know that would tear you up. It wouldn't be fun, but the point is surviving. Although I don't know if I'd survive without it, but that's an experiment for another time. But moving on to the next one, the next one is just emergency fund, emergency fund, emergency fund.