How to SURVIVE and THRIVE During 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. What if the next recession wasn't something to fear, but your biggest opportunity to build lasting wealth? Listen, if you've ever felt anxious about market crashes or job losses or wondered, how do you protect your money? How do you protect your lifestyle and your life when the economy takes a dive? Well, this episode's for you. Because today I'm going to show you exactly how to not only survive, but in a recession, but to come out of it on the other side stronger, wealthier, and even more secured than ever.

All right, so let's talk recessions. Various statistics are commentators right now that are saying that there's a 60% chance of a recession this year, anywhere from 35 to 60%. So I want to break it down for you here. I want to kind of dial this in for you to maybe allay some of the fears, the fear that the media is doing and all the stuff that's going on and get you prepared to not only survive but thrive. And so let's, let's talk about what it is, what you can do and the things to do to thrive. But first off, let's just start with the fundamentals. What is a recession? Well, a recession is basically two consecutive quarters of negative economic growth, meaning that. And they use GDP or cp, you know, to really measure that. And so basically, six months of declining growth in our economy. That's it. Okay? That's the technical definition that they use. And the average recession historically has lasted 11 months on average. Some have lasted longer, like 2008. But the fact is, is that if it takes six months to diagnosis and the average is 11 months, you're. You're looking at five months after they tell you it's a recession, which means one thing. It means you feel it way before they declare it. Okay? So the, the idea is this. It's an emotional element that we need to think about. And when you see what happens in a recession, jobs tighten, markets fall, people panic. The news is running basically 24, seven fear loops that will get you to start wondering things like, should I cash out? Should I stop investing? You know, what did I do? I put money in my 401k. Now it's dropped. What if I lose everything? Okay, those things are going on, and they're just. To be real. They're. They're legit. I mean, they're legit feelings. I don't. I don't want to discount them. I don't want to.

You know, shrink them down. But they take on a whole nother life when we don't understand recessions at a. At a level where we understand what they are. So that's why I wanted to do this, because I've been there. I've been through four recessions myself. More than that from a chronological edge, but. But I was too young to understand it back then. So I've been there in the sense of 2008, I saw the market tumble. It went down 57%, almost 60%. And most people froze. Most people freaked out. Okay.

I didn't. That was a good thing. But the only reason I didn't is because I did decades before, and I learned my lesson because it cost me a lot of money. I freaked out. And I got rid of everything. I sold everything. And. And I was scared. And I sat on the sidelines. I literally shuddered on the sidelines, didn't want to play the game. And. And had I just done some of the things that I'm going to talk about here, I'd have had a couple million dollars more in net worth. But it is what it is. But in 2008, I was prepared. I had liquidity, I had a plan, I had a strategy. And while people were selling, some of them because of fear, some of them because of panic, some of them because they had to, because they didn't have things structured right, they didn't follow a system or process to build a solid, unshakable financial foundation. I was buying. I was investing. That journey from 2008 was one of the most pivotal points of my wealth journey that allowed me to grow my wealth, because I don't believe recessions destroy your future. Bad decisions during recessions do. So it's not the recession itself, and it's also the bad decisions I think, leading up to it. There's things that we need to consider in doing it. So I want to break down what I think are seven timeless strategies that allow you to survive and thrive. And these are the exact steps that I will do with my clients. I use myself to build resilience to set myself up for growth, to do things no matter what the economy. Because here's the thing that we know. A recession is just a cycle that happens. We go, we go from.

Boom to peak to, to rescending, shrinking to trough, and then back again. It is a cycle. The bottom line is a recession will happen. We just don't know when, we don't know how deep, we don't know how long. And if someone tells you they do run, they don't. So the key is that we know that it's part of the journey, are we prepared for it? And if you have the right plan, you have the right things and strategies in place, it will work in times that the economy's down. It will work in times where the economy's up. It'll work in times where the economy's not really doing anything. It's going sideways. And so let's walk through these because I think they're timeless and hopefully they'll set you up to prepare yourself more effectively for the. For when and if it comes, which maybe this year, maybe next year, maybe years from now, who knows? Okay. But instead of living in fear and uncertainty, you'll be prepared. All right, so number one is diversify both your assets and your income. See, often we talk about diversification in the construct, in the context of assets. You know, don't put all your eggs in one basket in the sense of putting, investing in one company. In fact, I don't want people to make single stock investors until they have critical mass to their portfolio. But the same thing, you want diversification of those assets because what does it do? It reduces risk. And so we want to reduce risk as much as possible without really a decline in our returns in that regard. So we have learned to diversify assets to reduce risk, but we don't really talk about diversifying income to reduce risk. You know, so what I mean by that is this. If you are dependent on a single source of income for your livelihood, for paying your bills, for taking care of your family, for doing the things you want to do, and that source of income is impaired or goes away because of job loss, because of health loss, because of other things, then you're done, you're toast. And so just like we say, we want you to diversify assets and maybe and start with low cost index or ETFs to spread the risk over thousands of stocks potentially. We want you to start to think about what are the multiple income streams that you can have, what are the things that you, you can do that don't require constant time and energy from you. So whether it's digital products or.

You know, some other online program or something you're doing, you could be more time intensive like tutoring or consulting or side gigs, but those are harder to. To keep going when your main, your main income stream is taking all your time. So there are ways to take your talents, your skills, your strengths and use them to generate additional income streams. Plus there's other income streams that don't take as much time. In fact, I talked about the 12 income streams that I have currently running in, in my life, in my world, and I'll make sure that I'll hook up that episode for you here so you can go back and listen and understand the, where some of these income streams can come from and how it's just a degree or two degrees off of my main line. So it's not some huge pivot. You know, it's not me doing a restaurant and doing tax returns at the same time. You know, I don't do tax returns anymore anyways. But point being is this is that it's important to have diversification in assets and income. And think about it this way. When I was diagnosed with cancer in 2019, I literally had to stop pretty much everything. I didn't have to. I chose to because I wanted to fight the demon. I wanted to beat it down. And the only way I knew how to beat it down is to put 100% of my focus on it. But if I was tied to a single income stream that required me to get on planes, to go speak, to do consulting, to do other other things, it would make it very difficult for me to do the, the protocols and the, and the treatments that I did to, to beat cancer. And so because I had multiple income streams, and in my book, building your money, she and I talk about the five incomes. It's something that, what allowed me to do is I shut down some of the income streams. So I stopped speaking and I stopped traveling as much. I. I started, I started focusing on the things that didn't take my time and didn't take my efforts as much so I could focus on healing. That's the gift of it is I want you to have choice. Okay? And it's important to do that. If, if I didn't have that, I would have, I would have been driven by the demands of paying bills and had to work, work to make a living during the day and fight for my life during the night. And I don't know how that would have turned out. Okay.

Number Two is building a peace of mind fund is not just an emergency fund. The cash isn't about returns. And I hear, I can hear people now. They're going to send me notes and say, cash is trash. Why would you put that much cash in an emergency fund? Now we call it a peace of mind fund. The typical rule is three to six months. I think it's outdated. I talked about it on some of my episodes, and in my book, I recommend nine to 18 months based on age, stage and circumstances. That's. That's the challenge. Put it in a high yield savings account. This becomes your financial firewall. This is, is the thing that I. It may be only making 4%, 5%, but it's doing a different job. It is not about you building wealth with that money. It is about you not eroding your wealth because you have to sell something at a loss because you don't have the liquidity to. To survive and thrive during a downtime. The job of the emergency fund, the job of the peace of mind fund is just that. It's your peace of mind. It's to keep you from going broke because you have to cash things out. Okay? The cash isn't about the returns. It's about the resilience and everything that make that happen. So it's an important aspect of your financial journey, your financial measures. Why? It's one of the. It's one of the elements in the, in the wealth priority letter. It's actually two elements in the wealth priority ladder, which, which could tell you, hey, it's important to have that liquidity to make that happen. That leads me to number three, cut waste, but don't cut joy. I don't need you to stop spending. What I need you to do is to stop unconscious spending. So many times we get in a place where we're just spending unconsciously. It's so easy. We go on Amazon, we have credit cards in these different purchase sites, and we can just swipe right and buy, you know, I bought a $900 coffee maker in there off of Instagram. All right.

Trim the fat, but don't trim your freedom. What that means is this. I need you to go through and say, what are the things that I actually really, really enjoy? Not momentary pleasures, but the stuff that, that I love, that I really enjoy. That's the thing that I need you to keep. That's the stuff that we want. Those are what I call the three to four joy points that are important, because here's what I know.

Two things. One, you will not Live a rich life through deprivation. Now, there might be difficult decisions, there might be discipline you need to have in place, but depriving you of all joys because you're trying to get financially taken care of isn't going to make for a joyous life. And if you do not have joy on the path to financial freedom, you will not have joy at the destination of it. And so when we look at it from that perspective, that I want you to find those truly, truly deep seated joy joy points and make them part of the plan. Forget the momentary pleasures, we can put those off. Now hear me out because I'm going to give some tough love here. If you're deep in debt, there may not be a whole lot of joy right away. It might be delayed because we might have to make some very hard decisions that require you to get this ship righted, to get the holes plugged first and then get in there. But I do not want you in a situation where you're depriving yourself of all joys. Okay, but this is a time where you sit back and ask yourself, do I have subscriptions that I'm not using? And canceling? Can I look at the other.

Expenses that don't add value to my life and cancel them? What are the things that I'm doing? This is why I think it's so important that everyone operates from a plan.

We call it a cash resource plan. Now, some people will say, oh, you mean a budget. No, I don't. I mean a plan. A plan that gives you permission to spend. A plan that tells you exactly what every dollar is met for before you ever earn it, before it ever comes into your possession. Here's what we know. Think about this. You're going to hire 10 people and you bring them into the conference room. You hired 10 people and you sit down with them and say, thank you for coming on board. Welcome to our company. I do things differently here, if you noticed. I didn't give any of you job descriptions. I didn't give any of you titles, I didn't give any of you tasks, I didn't give any of you goals. I'm not going to tell you what to do, but here's the objective. Let's double the business size and the revenues in the next 12 months. Let's go. You know, I mean, it sounds silly and like there's no way you would do that, but yet we do that with our money. See, our money comes into our life and it doesn't have a job description. And so we see it in the checking account. We see it in the bank account and we turn around and we go, huh? And we spend it. Your cash resource plan. That plan is the job description. Every dollar has a job. Every dollar needs a job description before it ever comes in. Because if it is not working you then it's not building your, your future. The subtitle of my book is how to get your money to work harder for you than you did for it. And the way you do that is you have a properly built plan that defines what its job is. Now some of it, it could be entertainment, it could be travel, it could be, you know, the mortgage or rent, but you know, up front. And so it's truly important that you operate them from a plan. And that plan will help you cut the waste, but not cut the joy. All right, leads me to number four. Number four is eliminate destructive debt. Now I am not one that says that all debt is the devil and that all debt is bad. No, but I do say that all debt has two personality traits. Whether it's destructive debt or productive. That doesn't matter. They both kinds of debt. And we'll talk about what they are.

Both of them cost, it's called interest. So if I am carrying any kind of debt, whether it's productive or destructive debt, it's going to cost you. The other thing is that all debt stresses, it's going to stress your finances because of the burden of paying the payments, but it's also going to stress your psyche, the psychology of knowing that you have this, this thing on your back that you got to pay. And so those are the two personality traits, whether it's destructive debt or productive debt. Well, what's, what's destructive debt and what's productive debt? Now destructive debt in my book is lifestyle debt. It is, it is consumables. It's, it's using a credit card to pay for things that are consumed or lifestyle that you couldn't afford to pay in cash. It's buying the big screen TVs on a payment plan. It's, it's doing those things that are consumed and the value of them has long left.

Before the payments ever did. Okay, that's destructive debt. We should not be using any kind of debt for lifestyle consumables. Now things like mortgage a car, properly financed. No, no more than three years.

Fine. But we're not carrying balances on credit cards. We're not financing technology. We're not doing that. I'm not talking about if you're in a business and you're financing A piece of equipment that's producing income. What is productive debt? And this will help bring this home. That is debt that allows you to build additional cash flows or grow your net worth and wealth in the process. So it could be a mortgage on a piece of rental property, it could be a loan on a piece of equipment that's going to increase efficiency and effectiveness of your business. It's, it's those things that will increase cash flow and wealth or net worth over time. So that's, that's productive debt. I'm okay with using productive debt strategically. Remember I say all debt costs and all debt stresses. We still need to be strategic about it to make that happen. But destructive debt is absolutely off limit limits. You should be eliminated. If you are carrying credit card debt, if you're carrying any kind of lifestyle debt, first things first. If you are, if you are using credit cards just to get by each month, then tough love, you're living beyond your means. We have to stop the hemorrhaging. That means that we have to make some very, very difficult decisions. Well, they're not, they're easy decisions. They're just hard to make because they're emotional. And that is, that means you got to start cutting things, you got to earn more money and we got to stop using those credit cards because we can't on one side try to pay the credit card off and on the other side start putting more on the, on the balances. It's putting water in a leaky bucket. We can't get there from here. And when credit card interest rates are at 20, 25, 29.9%, you'll never get ahead with that. So if you need to get out of debt, then here's the thing. I want you to get my debt breakthrough calculator totally free. Go to melabraham.com nodebt It's a short training. It'll give you an Excel template so you can put your payments and get yourself on a plan to get yourself out of debt. Get out of that destructive debt and don't ever go back because then you won't have that burden on your shoulders. All right, number five, upskill. So you stay valuable. See, I believe that we live in a value exchange economy. So if you want to earn more, then solve bigger problems. What is your value? What is the value of your skills? What is the value of your strengths? What is your value of talents and your knowledge and wisdom and expertise? And.

As you increase those skills, they can make you indispensable to your employer, to your clients. To your market and the more indispensable you you become, even if there's a recession, you're the last one to go. Okay. When you start to look at it, if we look back on the pandemic in 2020, the people that actually thrived and, and survived during that time are the ones that had the flexibility because they had skills and value beyond the job title. So if we're just going and saying this is all I need for my job and you don't go any further, then you might be on the chopping block. If, if a recession hits, what I want you to do is to have high valued skills that other people don't. Won't do it. Now I remember back in the day, so when I came out of college, I worked for one of the large, large consulting firms in the world. And I was in the downtown Los Angeles office, you know, wearing my three piece suits every day, my wingtips. But one of the things that I got known for there is to take on the projects that other people didn't want to take on. It was typically the projects that were like one offs that no one really knew how to do. And so it was like a puzzle for me. I would go in, I would to figure out what it was, what needed to be done and get the project done from a consulting standpoint. But I gained a reputation for Mel's that fixer. If, if something comes in that's unusual, just give it to him. But here's the thing, is that that made me more valuable in the company's eyes because I was this utility player that could go and do things that other people were unwilling to do and didn't do. Which one got me paid more, got me bigger raises and got me more notoriety. And I was able to get other opportunities in the company sooner than most by doing that. So here's what I would do, is that I want to challenge you and that is ask yourself what is one skill you could build this year that would raise your value by 20%? What is it? And then what is it going to take to get it? Meaning that do you have to get it, take a class, do you have to take a certification? Do you have to do something online? What is it going to take for you to get that skill and then put it on the calendar? So what's the skill that will raise the value by 20%? What's it going to take to get the skill and then put it on the calendar to start the path to that skill? All right, leads me to number six. Stay the course with your investments. Listen, seven of the 10 best days in the market over a 20 year period came right after the worst days in the market. That means that if you get scared and get out because the market's going down, then you're likely going to miss some of the best days in the market. Why does that matter? Well, here's, here's a station. If you miss 10 of the best days over a 20 year period in the market, based on a study going back from 2003 to 2023 of the S&P 500, you lose almost 50% of the returns. In other words, the way they looked at it is that if you invested $10,000 and you waited 20 years and just stayed in the market, you'd be somewhere around $65,000.

But if you missed the 10 best days, which seven of them were after the worst days.

Just 10 days in 20 years, your $65,000 was down at somewhere around $41,000. Huge difference. Huge difference. And the fact is, is you can't time the market. You don't know what that is. You don't know how to do that. No one does long term. Can a hedge fund trader, can someone do it one year, two years, maybe three? Yeah, but historical data shows that no one beats the market long term. So why not just stay in the market? Okay? Just stay in the market. Trying to time the market is a losing game. And so let's just ride the wave. We know that we're going in. I'm buying when the market's going down. I'm buying when the market's going up. I continue to do that, okay? You can't build a wealth machine if you're not in the game. If you want to win the wealth game, you gotta be on the field. You can't be on the sidelines, you can't be in the stands. You've got to be in the field. Let, let your investment. If you have got a properly done financial plan, we talk about it in my money machine master plan where it's stress tested and you know specifically what you're investing in, why you're investing it. You have the portfolio structured properly based on your age, stage and circumstances. That plan should work in an up market, in a down market, or in a sideways market. Here's the challenge. There's a lot of people out there, and I know this may hit some folks, but there's a lot of young folks out there talking about, you know, wealth and money and all that stuff. They've never Experienced a down market. I gotta tell you, when you look at the history of the market and what's been done, a lot of you, a lot of folks can. Can turn around and would have made money with their eyes closed because the market has been on a crazy incline for over a decade. And then we have had some volatility recently. And this might be the first volunteer they've seen. Me, the beautiful thing about me being the age I am, I've been through four recessions. I've been to the.com, the SNL crisis, the financial crisis. I've been through a lot of things, and I have watched and I know what happens and what works in, in either of those situations. And so I bring a different level of. Of experience and wealth of knowledge, okay? No pun intended, to this financial journey because I've had to live it, okay? Sometimes I screwed it up. So I take the lessons from it and I give them to you so you don't make the same mistakes that I made, all right? And that leads me to number seven. And this is a huge rule for me. Only invest in what you understand. If you don't get it, if you don't get it, then don't bet on it, okay? I learned this the hard way, you know? I lost one third of everything I owned in a Ponzi scheme. Why? Because I had ignored my own rules. I chased emotion over strategy. I didn't completely understand the investment, but the promise sounded good. Between me and two other buddies, the three of us lost over four and a half million dollars, okay? The fact is, is that if you want to invest in something, then you need to understand it first. If you want to be a stock investor, if you want to invest in the stock market, then understand it. If you want to be real estate, you then understand it. Don't allow someone else to try and say, hey, this is good. This is good. I had a recent. A recent situation with someone that came to me, asked me to look at an investment, and I told them not to go into it. It didn't. Something didn't smell right. There wasn't enough data. There they went. They ignored my advice. And not only did they ignore my advice, they went into it with five times more money than they told me they were going to. And it turned out to be a scam. They lost it all, and now it's into.

FBI and all kinds of crazy stuff. I don't know if they're going to see a dime back, but the fact of the matter is, and they didn't understand it completely, but they listened to the people that were promoting it. Okay, forget what, anytime someone's trying to promote an investment, look at the bias. Look at the bias. And, and there's a bias to get them in it because, great, they got your money.

So if you don't understand it, then you don't get into it. And if you want to get into something like that, then spend the time to truly understand it. And if they won't answer your questions, they won't give you, you know, enough time to, to, to get a deep understanding of it, then they don't get your money. They have to earn the right to have the money.

And the way they earn the right is to be fully transparent and take whatever time it takes.

To make sure that you are completely educated, informed to make that investment. All right, so.

With that, the question then becomes, well, where do you find the opportunity if there's a downturn? Because.

Here'S what I realize is that more millionaires are made during recessions than at any other time. And recessions are like the Black Friday sale for wealth builders, literally. So you're going to find discounted assets, undervalued companies, real estate deals. It's all, it's all there. I know someone that during the 2008 recession was buying up properties at 7, $8,000 in Detroit. And now he's got this portfolio of properties that are cash flowing, that he bought it at a discounted price. When things go on sale because of declines in, in, in pricing, declines in values, declines, and in things like that, you want to be prepared to take advantage of it, to step in, but you need liquidity to act. You need to have the cash available to do it. And okay, you also need the confidence and the knowledge to move when others won't. That means that this is a time for you to, to boost up your financial literacy. Whether it's reading my book, staying in tune with my show. Listen, if you have not subscribed to the show, subscribe to it now. Stay with me so I can help you down this path to make that happen and share the show out. Okay? Let people know. All right? It's not a time to sit on the sidelines. It's a time to get properly positioned strategically so, so you have the idea of what you're doing. Get a game plan in place so it is clear. And if there is a downturn and you see the opportunity, you don't have to study it. You've already studied it. You're educated. You are knowledgeable about what you're trying to do, you have the cash flow to make it happen. You know exactly how you want to get in the game and get out of the game. And now you can move in. Okay, here's the thing. Whether it's recessions or not, there are principles that will keep you going no matter what. And so I want to leave you with this. These five wealth truths that will never change no matter what's going on. Some may be common sense than you've heard before. The question is, if you've heard it before, are you living it? Is it common practice? If it's not, then I'm going to invite you to make a common practice. All right, number one, spend less than you make. Right?

That's the crux of everything. Spend less than you make, and then what you do with what the difference is becomes important. Number two, save before you splurge. Make your financial future.

A priority. Over and above.

Just spending on the momentary pleasures. Okay? Number three, invest consistently. Remember, creating wealth and building wealth is more about behaviors than it ever is about money. So I want you to develop the habits, I want you to develop the skills. I want you to develop the behaviors that the wealthy have. That means that if you can only invest $5, you start with 5. 10. Start with 10. 100. Start with a hundred. Okay? You have the ability, just a hundred dollars, you can get yourself started investing. And I talk about it in my investing simplified course. But the point is, is that I want you to invest consistently. Number four, stay diversified. We teach our students and our clients. We don't do single stock investments. There's too much risk involved at the beginning until you get critical mass on the portfolio. We want to build a solid, unshakable financial foundation first. Then we'll work on growth second. Okay, and then last one, stay educated. Build your financial literacy. Build your understanding. You don't need to be as technically.

Nerdy like I am, but you do need to have some basic understanding of money management, wealth building, and the, and the, the things that, that matter there. After all, it is your financial future. It's your. It's, it's your legacy, it's your families, it's your loved ones, it's your experiences, it's your life. Okay? This isn't about doom and gloom. It's about designing a life that's recession proof. Because when you do it, you've done it with intention, you've done it with clarity, you've done it with confidence, you've done it with consistency. You've. You've got the knowledge, you've got the support.

And you've got the guidance to make it happen. So listen, I hope that this gives you a little peace of mind and everything, and that you find that this is a path you want to be on, because the alternative is handing your financial future over to someone else. I don't think that the outcome is ever very good. I want your hands on that steering wheel. It's your life. You captain the ship and you bring everyone else around you to be the navigators, the deckhands, the people that help you on that journey. All right? Design your life. Build it your way. Live it fully. That's what you're here to do. And if I can help you along the journey, you let me know. That's what I'm here to do. Because I believe that financial freedom, it's your birthright. I want to help you go claim it. I hope that you found this of value. Can't wait to see you on the road to your financial freedom. Until I do, always, always strive for the life that was.

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.

Foreign.

And that's it for this episode of Building your 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 Podcast, 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.