063 Do This Now In Case of a Recession

Hey there, real quick before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience live. It is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. Is a recession coming and what do you do to prepare for it? That was the question that was posed to me in one of my affluence blueprint masters calls by one of the members. And I just thought that the answer and how we walk through it might be helpful to you. So welcome to this episode of the Affluent Entrepreneur show. We're going to talk about is the recession around the corner and what do you need to do to keep yourself safe? I'll see you in the episode.

This is the Affluent Entrepreneur show for entrepreneurs that want to operate at a high level and achieve financial liberation. I'm your host, Mel Abraham and I'll be sharing with you what it takes to create success beyond wealth so you can have a richer, more fulfilling lifestyle. In this show, you'll learn how business and money intersect so you can scale your business, scale your money and scale your life while creating a deeper impact and living with complete freedom. Because that's what it really means to be an absolute entrepreneur.

We are right now in an inflationary time. It is not transitory. It's not going away anytime soon. Traditionally, the way that we've pushed ourselves out of the inflation is to start ratcheting up interest rates. And Hal just talked about it. They just hiked the interest rates a quarter point and he said likely six. Six more hikes and we should be good. But here's the fact of the matter. They don't know. They don't know if it's going to take three. They don't know if it's going to take five, they don't know if it's going to take eight. But what's happening if we start to just walk through this? Interest rates are going up now. I just did a tick tock. I'm trying to do these tick tocks. Oh my God. From the beach. First things first. Getting anything out in 60 seconds for me is a challenge. But I read an article that said that the last quarter of 2021 saw the, the highest.

Credit card spending in two decades, something like 856 billion billion. So watch what happens.

The average credit card balance that people are carrying is somewhere between 6 and $10,000. That stuff is all variable rate interest on it, depending on their credit worthiness, depending on that credit score will depend on the rate that they're being charged. Every time the Fed increases rates, those rates on that $800 billion are going to go up. The ability to pay is going to go down.

Anyone that has, there isn't as much out there, but anyone that gets into teaser rate mortgages to try, and trying to get into this market, the market's getting away. The real estate prices are going up. Oh my God, I got to get in. I got to get in, I got to get in. So they get this teaser rate so they can afford the higher price. And then all of a sudden mortgage rates go up because they're raising interest rates. Affordability goes down.

We have inflation where prices are going up. So the level of affordability is going to decline if we can't stem the tide. So the way that they're trying to do it is increase interest rates, which is actually perpetuating the affordability issue.

And it's only until.

People freak out enough, and that's not a technical way it works, but people freak out enough and, and the market starts to drop, they stop buying.

And things start to soften up that all of a sudden they go, hey, looks like we've slowed down inflation. The problem is, is if they, the time between when they make the adjustment and they see the result.

There'S, there's a gap there and during that gap, we might break the system. And if we break the system, we end up in a recession. What I mean by break the system is that we may have increased the, the rates way too far. The Feds don't have a scientific way of defining and determining other than they're doing their models and they're doing, and they're getting consensus opinion and they're talking to the economists, they're assuming that this should fix it, but they don't know for sure. And because of that, there is a chance that we, by the very process of trying to stop inflation, we find ourselves in recession. And in a recession, then the question is how deep and how long.

And so this is the thing that I think we need to consider that it is a possibility for us in, in the near future, in the next couple years, I think it is possible that we see some sort of recession. I don't Know how long, I don't know how deep. We don't know what will be going on at the time.

So how we prepare for it, one is.

We focus a lot on one, getting ourselves out of debt.

Because that debt burden creates a stress on you financially around your ability to sustain yourself should income drop, job loss, all those things. So the combination of trying to get additional liquidity, cash on the side and get my debt paid down.

Is the thing that's going to save you the most during that time. Then we can then take the second step and say, well, what, what should we be doing? Should we be investing? Yeah, we may be investing, but not if we're forsaking.

Our cushion to sustain us during a downturn. Okay, it is. And it's not about the fear mongering, it's just. And this is why I'm, why we say in the Peace of Mind fund, I wanted, I wanted somewhere between nine and 18 months. 12 and 18 months, call it 12 months. Because we can push ourselves through most of that stuff if we have that liquidity and able to do that. So the average length of a recession historically has been 11 months. If it hits now, could it be longer? Could it be shorter? Yeah, absolutely, if it hits. So this is why it's important for us to just keep our fingers on the pulse, not stick our head in the sands. Make proactive decisions on an ongoing basis. Not based on fear, based on logic, understanding and principles. And then we can move through that. So if, if I were sitting back and saying, what are your priorities if to prepare in case there's inflation? I think the first thing is this. Scale income while you can, okay. To eliminate destructive debt. Okay. If you have debt that's producing cash flow and everything, it's not as bad, but that would be secondary to eliminate other debt. And then three is to build your peace of mind fund and liquidity.

Those are the three things I would do right from the get go. Okay. Because that will put you in a position to carry you through any of the downturns. Hopefully that helped.

Thank you for listening to the Affluent Entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the Affluent Entrepreneur Facebook group Now by going to melabraham.com group and I'll see you there.

And that's it for this episode of Building youg Money Machine where we help you learn how to master your money, eliminate financial stress and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcasts, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright and I want to help each and every one of you claim it. Thanks so much.