I've been through 4 recessions, here's what always happens...

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 didn't wipe you out but actually made you wealthier? Listen, if you've ever felt anxious about what happens when the economy crashes or worried that you're not prepared, well, this episode's for you. Because I'm gonna show you exactly what happens every time a recession hits and how to position yourself not just to survive, but to thrive through it.

I've been through four recessions in my lifetime, and some people would say that we're on the doorstep of a fifth one. In fact, if you read, depending on who you read, it's anywhere from 35% to 60% chance of recession this year. Now, this isn't to create fear, because I've seen market crashes. I have seen headlines explode. I've seen people panic. I've seen portfolios evaporate overnight. But I've also seen something else. I seen fortunes quietly built when no one was looking. And in fact, in 2008, because I had liquidity, I was able to invest when everything was on sale. I mean, when a recession hits and we'll talk about what it is and everything and things drop, good companies go on sale. And that decision gave me the biggest financial growth that I experienced in a single decade. So in this video, I want to. I want to break it down for you. I'm going to tell you what I see and what I have seen always happens in a recession. Why it happens, how to recover, you know, if. If it does unfold, and. And how to protect yourself and how to prepare so you don't just survive, but you come out the other side driving. So let's just start with the. The basics. You know, what is a recession? We hear the R word get battered about. We hear people saying, you know, what is it? Well, a recession technically is when the economy shrinks for two quarters in a row or more. And the measure of the economy is what they call gross domestic product, the amount of production we have. So that means that when we have a decline in two consecutive quarters over a six month period. They sometimes will declare it as a recession. Now, it means that businesses are going to be slowing down, it means that people could lose jobs, it means that consumer spending slows down, which further perpetuates businesses slowing down. And it's as if the economy caught a cold. It slows down to heal itself. And this is something that we've seen repeatedly. It's part of the economic cycles. It doesn't make it fun, it doesn't make it enjoyable. In fact, Since World War II, the U.S. has gone through 13 recessions. That's about one every six to 10 years. And they're just part of this natural economic cycle. And if we're prepared for it, we understand that, we're aware of it, then we'll know that the economy goes through periods of expansion, it goes through a peak, it then goes to a period of construct contraction, and then it goes through a recovery and then it repeats itself. But the thing is that when you look at the amount of time we have spent in recessions versus the amount of time we have spent during boom times, it the amount of time that we spend in recessions is dwarfed by the amount of time that we are in a boom economy. And that's the thing that I think is really important for us to understand, to have that perspective, but also understanding what causes recession. Why do sessions happen? And if we just look at it, you know, why does disease happen in the body into a, in a system? It's because something is out of balance, something needs to reset, something is going on. Why do we catch a cold? Why does that? Because something in our system is out of balance. And so that's what happens. So think about this. If we just look at The Great Recession, 2008, that was a housing bubble and too much debt. In fact, it was bad debt, inappropriate structuring and mortgages that were defaulting that surged and everything came crashing down. You know, that was 2008. 2000 was the tech bubble. Okay? Companies that were growing, they had zero profits, but they were valued like it was an Amazon or it was an Apple or a Microsoft, but they had zero profits. And all of a sudden people realize, wait a second, the top line doesn't matter if there is no bottom line and the tech bubble burst in in 2000 or let's go back more recently to the 2020 Covid.

Basically shut down the world economically and it was this black swan event that froze the economy overnight and that dropped us into a recession. And this goes on and on and on. If you look at 1981-82 recession, that sky high interest rates, interest rates were crazy high. And the Fed literally slammed on the brakes to cool things down. So recessions are often triggered by excesses or things that amounts too much borrowing, overvalued assets, a shock.

That happens in the system, maybe that's the thing that happens. And there's this reset. And so.

That'S why it happens. That's the what of what it is. But what have I seen that typically happens in a recession? So what can we expect if it happens? Now let me be really clear. A recession will happen, but no one really knows when. And I'm saying it will happen with 100% certainty because it is just part of the cycle. But we just don't know when and we don't know how deep and we don't know how long. And hopefully it's not deep and it's not long. Hopefully it's not soon either. You know, but, but here's what I have noticed in any recessions is that what typically happens in recession is there, there is a pattern. And when you, when you understand patterns, then you could work the pattern. So first thing is that jobs are lost. Second, the markets will drop. Third, people will panic. Fourth, the news, news cycle will feed the fear like gasoline on a fire. And, and remember, the media isn't there to inform us and educate us. It is there to get ratings, to get advertised, to get eyeballs, to get viewers. And the best way to get viewers is to polarize a situation or create that fear because fear will sell in, in, in that situation. So if you think about some of these things, so job loss, market down, people panic. And then the fueling by, by the media cycle. If we just look at the 2008 recession, the S&P 500, which is the 500 biggest companies in the Standard Poor's index, lost 57% from peak to trough. Meaning that that from the high it dropped. It lost, it lost almost 60%. Huge. It was painful. It was painful. Now on the other side of that, that also meant that those that had the liquidity could buy things at 60% off. Okay. In 2020, during the pandemic, we lost 34%. One third. Yeah. S&P lost one third in just 30 days. I mean it was such a fast drop. It, it gave us whiplash, okay. But it was also a fast recovery. 2001, when the dot com.

Bubble burst, the Nasdaq lost almost 80%. Okay. Now I don't, I, I'm hoping that we don't have anything to that magnitude because it would, obviously it's, it's, it's of a magnitude that would be damaging for a lot of people. But if you're prepared for it and you understand what could happen, there's another side of the story. Yes, prices drop then because all of a sudden because of a recession, prices drop. There isn't demand. Assets go on sale. We can get things at less. And the key is the people who are prepared.

Who have cash, who have clarity, who have courage, who have an understanding of how markets and economies work, will be willing to step in and seize the moment to look at it and say how can I get into the game when things are for sale now? It's challenging. Let's face it, when everyone's running out of a burning building, when it feels like it's going to be burning, you're sitting back saying I'm going to run in. That's counter to what people will do. Because that panic gets people to say I'm just going to go sit on the silence. In fact, I did that decades ago where I got scared and I cashed everything out and I sat on the sidelines and I've talked about this in the, in the past where it cost me a lot of money. Had I just stayed in the investing and stayed in the game, I would be million millions of dollars wealthier. But I'm not because I got scared, because I didn't understand what I'm talking about here. So I want to make sure that you start to understand that a recession.

Is a wealth transfer, if you will, because the money doesn't disappear. It just moves from over leveraged to the liquid. So those people that have not structured deals right, they have, they're buried in debt, they don't have liquidity, they don't follow the wealth priority ladder like I have in, in building your money machine where we have a peace of mind fund, we have a comfort fund where you're doing the things that will protect you. Because I look at the things that I do and say I want to give you a unshakable foundation first. And then we worry about growth. So I safety first, growth second. But the tendency is I want to hit it out of the park. So you're, you're trying to hit the home runs. The problem is, is that if you overextend yourself and we get hit with a bad economy, you can't carry it. This is exactly what happened in 2008. You were, people were over leveraged they had bad mortgages, they over encumbered their properties, the property values dropped, they lost their jobs and then they could not carry the debt, things went into foreclosure, which perpetuated the problem even more. And so what happens in a recession is that there's this indirectly a wealth transfer between those folks that have over leveraged their financial existence to those that have the liquidity. It goes from those folks that are living in this fear based perspective because they didn't prepare, to those that can be focused and are willing to respond. And so this is what happens. And I think that this is the thing that happened with me. When I look at my.

Journey now. No one has a crystal ball and if someone says that they can tell you and they have a crystal ball of what's going to happen in the economy, run, okay. But in 2008, I didn't know it was happening okay? But I had liquidity. I mean, it was a painful time in the sense that the markets dropped, like I said, almost 60%.

And there was job losses and businesses shutting down. There was other things. But in that time frame in 2008, I was starting to really look at and say, how do I start to get my money to work harder for me than I did for it? And when I looked at the stock market and I started to see that it crashed and I wasn't forced to sell because I was following the principles that I teach and I had liquidity to carry me during the downturn, but I also had the liquidity to take advantage of opportunities at that time. So I was stressed, but I wasn't stressed that I couldn't make ends meet. And so with that I was able to not make panic decisions. I was able to look at it through the perspective of okay, breathe through this, don't know how long this is going to be. But markets have dropped things. Things of prices have dropped, values of real estate have dropped, jobs, job losses have gone up. What to do, here's what ended up happening is that I started to buy some additional investments that were investments that were forced, people were forced to sell. You know, whether it was real estate, whether it was stocks that were now 50% below their, their high, then I was also able to negotiate deals with people that needed out. So I came in and I would negotiate a deal with someone to help them out, give them the liquidity they need. But then I would get assets at a good price, okay? And I invested primarily focused on the value of things instead of the hype. It's really easy during These times, especially with the media, to get yourself caught up in the frenzy of fear that's going on. But when you understand how markets work, how they ebb and flow, when you understand principles like we talk about in, in my book building your money machine, it doesn't freak you out like it once did with me, okay? And that you realize that you're in a boat and this is a season where everyone else is also contracting, if you will. And those that have built strong financial foundations can build long term wealth. And that's exactly what we did. And so I want it for you, is that you prepare for the good times, you build during the hard times, but you're prepared so you don't get surprised in a fear of frenzy, of fear to do that. So.

Understand this. There is a path in which a recession starts to reverse itself because the recessions don't last forever. So the recoveries unfold differently. But we have this thing called recency bias in the sense of when we get hit with something like this, we tend to believe this is the new normal. And when you hear people, especially in the financial markets, saying things of this time, it's different. Is it really? Okay, when the markets drop because of 9 11, when the markets drop because of COVID then the markets drop because of the dot com bust. Is it different? Maybe the circumstances are different. But when you zoom out and you look at it, it's because of over leveraging is because of these other things. And the one thing that is for certain, recessions don't last forever. Recoveries always follow and it all almost always follows stronger than expected. It's what we call a V shaped recovery, especially in the stock market. Real estate will do what's called a U shaped recovery where it'll, it'll drop and it'll stay down for a bit and slowly, slowly, then it'll turn back up. It's a slower recovery. But if you think about what happened in 2020 with COVID it dropped in 30 days, but then it recovered pretty quickly. And so when the market recovers, it's usually a stronger than expected recovery, a V shaped recovery, and then it lasts longer than the recession. So think about the 2008 crash and that recession. The market dropped 57%, but then when it recovered, it went on an 11 year bull run. Bull run, meaning that it 11 years up. That was probably one of the most fruitful decades. It certainly was one of the most fruitful decades from an investing standpoint in our life. Okay, when you look at the COVID crash That dropped in 30 days, but it hit new highs within five months. You look at 1981, same thing, the 1981 recession, but then you entered a decade long economic boom. So the key is this, is that those that can sustain themselves during the downturn and then take advantage of the things that are on sale when the recovery happens, you ride the wave much faster. This is exactly why they say more millionaires are made during recessions at any other time in history. And so the reality is that recoveries happen because humans are resilient. Businesses will innovate, consumers will come back and investors will regain confidence again. That's just kind of the way it is. If you think about when we end up with a recession, a lot of times it's like a portion of the forest burnt down, it clears a lot of the dead wood, but then what grows back in its place is typically stronger, more sustainable and more productive. And, and so I want you to think about it from this perspective. I think recessions are necessary. They're necessary to let the steam and the pressure off the, off the system. They also will shake some things up and shake some, some things out. But they're also a place for us to have an opportunity if we do the right things before, during, and after the recession. So let's talk about to do before the recession. Before the recession. Is this the first is this is the preparation phase and we should always be prepared for an economic downturn. It's the very reason that the lower rungs of the wealth priority ladder are built the way they are. It's also the reason that I say that we have the five incomes and we want to have multiple streams of income to make that happen. So the first piece of this is to build liquidity. Okay, we're not in a recession as we're recording this. Could we end up in one? It's possible. Who knows? But will we end up in one? Yes, at some point. So let's just assume that it's coming at some point and let's prepare. So in order to prepare, the first thing is to build liquidity. That means an emergency fund. That means what we call a peace of mind fund. A lot of people will say three to six months. I don't, I say nine to 18 months. I think that three to six months is not enough. And so realizing that having the cash available gives you confidence, liquidity gives you leverage. Having the cash available allows you to take advantage of opportunities and things that are on sale when they come into play. So if you are not at this point putting money away for purposes of having that peace of mind fund and having that, that safety net, then now's the time. Now's the time to get automatic transfers to a high yield savings account and make sure that you're starting to build it over time. It's not going to happen overnight, but we got to do it. So that's, that's number, number one. Number two is this, this is also a time especially with interest rates up, is to eliminate high interest debt, eliminate destructive debt. We should not, cannot and should not be financing our lifestyle. We shouldn't. If we are, that tells me that we're living beyond our means. So we do not put our lifestyle or consumables on credit. Okay, if you're paying the credit card off every month, okay, I can get on with that. Although a lot of times you'll overspend because there's no friction to it. So. But the point is that I don't want to carry balances. We don't carry high interest debt. We don't get used consumer debt to finance a lifestyle. So if you've got variable rate loans, if you have credit cards, now's the time to make sure that you're on a payment plan and get yourself out of that. Get yourself out of it by using a snowball method or an avalanche method. The snowball method is, is paying the, the lowest balance first. The avalanche method is paying the lowest, the highest interest rate first. If you're unsure how to do that, go to melabraham.com no debt. We'll make sure we give you the debt breakthrough calculator. It's free and a short training with me to make that happen. But that's going to, going to give you the flexibility so you're not burdened with debt. If a recession is the third thing is this start to look at diversifying your income. Don't rely on just one paycheck. Okay, don't, don't look at, and say is are there ways to create additional streams of income? Whether I take my expertise, my knowledge, my wisdom to put something else out there, to have a side gig, to do something. Because if one income stream goes away, I have another one to at least supplement or cushion the blow. But too often we're focused on just a single income stream. But I want you to look at multiple industries. In fact I did an episode of the show talked about the 12 income streams that I have. So not, not that you need 12. I just. So you understood where, where you can diversify the income streams And I'll hook up that episode in the, in the notes below. So diversify your income stream is number three. Number four is to rebalance your investments. So if you have investments in your 401k in your, in your brokerage accounts, I don't want you to overexpose yourself to riskier speculative assets. So I want you to get, look at them and say, am I properly structured for my age, stage and circumstances? Am I overly indexed to equities or speculative investments, emerging markets, that kind of thing? What kind of portfolio structure do I have? Because when the market drops, like for instance in my case, the market drops. In fact, today the market's down almost a thousand points.

So if the market drops 4%, we're not dropping 4% because of the structure of our portfolio. So this is a time for you to make sure that your portfolio structure that you have is not overly risky in the way it is based on age, stage and circumstances is going to be different for everyone. And then the last piece on before the recession is to, in addition to having that peace of mind emergency fund, have a pool of money earmarked for investing when the market dips. So for instance, when we had a recent drop in the market, I have a, what's called a cash balance defined benefit plan where it's, which is my pension from my business. I usually will fund it over a period of time. But when we had this, the big drop, I had my team, I said, let's, let's jump in the market, let's go ahead and invest. So that's what I would do beforehand. And so the theme here is really liquidity. Okay, now what do you do during, during the recession? So say a recession hits, what do you do there? Okay, this is, this is your stability phase. Okay, the first things first, stay calm. I know it's hard, it's hard for me when you start to watch and you go, oh my gosh, we're down, we're down. Stay calm, do not panic, sell. If we start to sell in a panic, then typically we're going to take losses that we didn't need to take. That's the reason we need liquidity. So you can sit back and say, I don't need the money, I don't need to sell because I have cash on the side to take care of me if I need it. So the first thing is to stay calm. Most people during those times, though, they lock in their losses because they're trying to time their emotions instead of the, instead of understanding what markets do and so what happens is that when we're driven on the buy side or the sell side by our emotions versus versus the logic and the math behind the markets, that's when we start to make bad choices, bad decisions. Okay? So stay calm is the first thing. Second, stick to your plan. If you're investing and you can continue to invest dollar cost average in, take advantage of it. If you do not have a plan, and I mean a dynamic financial plan, then we need to get a plan in place. This is not a plan that you sit back and go, oh, you want to budget me? No, I want you to plan so you know exactly what every dollar is going to do for you. Whether it's to pay the rent, pay the mortgage, put food on the table, put clothes on your back. What is each dollar doing and how is, how is a portion of those dollars being invested to build your wealth and build your money machine to give you the financial freedom you deserve. So I want you to stick to the plan because if you do the plan right now, when we do plans in the, in the money machine master plan, when I do that one on one with clients, we stress test the plan. If the market drops 20%, if the market drops 30%, if the inflation goes up 1 or 2%, if, if there's a job loss, we test it and test it over and over again. So we stress test it to see will the plan still work. Because the right kind of plan will be good in up times, it will be good in times where we're just kind of sitting still and going sideways and it'll be good in downtimes just the same. So stick to the plan. We don't change the plan. Leads me to the third piece is this is I want you to seek value. I want you to look for, for good valuable investments. When, if you have the liquidity, this is the time to look at high quality business, high quality stocks, possibly discounted real estate, other distressed assets. I know of someone that was during the 2008, he was buying properties up in the Detroit area for seven, $8,000 and now all of it came back. So having that liquidity then allows you to sit back and say, let me find good valuable assets that I can invest in that I have a process to evaluate. I do the due diligence, I know it's a good investment, it fits the plan and I can jump in at a much more discounted rate. And then the last number four on this is to cut unnecessary spending. Okay, this is, you gotta make some hard choices. I want you to look at wants, needs and cancels in, in your stuff. When I, in my course building your money machine, we break it down and we say, what are the wants? What are the needs? Now here's the deal. The needs are your survival means that you will die if you don't have it. Anything else is a want, okay? Means it's your needs are your, your food, your shelter, your, your clothes on your back, your medical, transportation, that kind of thing. But it's not the other things. The, the mani pedis, the Netflix, all that stuff. Those are wants, okay? Those are wants. So I want you to prioritize essentials, delay big lifestyle upgrades and big expenses, maybe big vacations, unless you have the liquidity to sustain it. But cut unnecessary spending during this time to give you the latitude and the breathing room to sustain yourself in a recession because we don't know how long it's going to last. Okay, and then what do you do after the recession? So we've talked about prior, we've talked about during now, what do we do after? This is the acceleration phase. This is the time where all of a sudden all this patience and this hard work and diligence really pay off. So this is where the first thing is. I want you to double down on what worked. The habits, the investments, the strategies that served you well before and during. You're going to double down on, you're going to invest more, you're going to invest faster, you're going to keep, keep going. This is the time that you're in a ramp up acceleration phase of, of growth. The second thing though is this. Because it's growing so fast, I want you to refine your systems, meaning that I want more automated and I'm going to do a whole episode on automation because there's a simple way to automate everything, to automate more, simplify it and make it sustainable. I want this to run in the background without your efforts. I want it to run in a way that you know the machine is being built without you having to pull the levers, twist the dials and keep pushing the thing. Okay? Number three. This is a time for you to share what you learned. Because there's a lot of people that will go into a recession, come out of recession, damaged, hurting, scared, not understanding. This is a time for you to share what you learned, not only with them, but with your kids, with your community, with your audience, with the people around you, to give them hope, to give them the possibility, to allow them to understand. So God forbid there's another recession. They can also move through it. In fact, you should be sharing what you're learning throughout the whole process to, to tamper down the panic and the fear, to allow people to understand. And if you're not sure and you don't understand, then I want you to. To boost your financial literacy throughout this. This is the time for you to study proper management skills, money management skills, wealth building, investing, those kinds of things. Start with my book, building your money machine. But let's make sure that you're doing it. Stay on this journey with me on the show, okay? Because here's what I know. Recessions are a part of economic cycles. They will happen. I guarantee that. We have a recession coming. I just can't tell you when. I can't tell you how deep, I can't tell you how long, but I can tell you it will happen. But I can also tell you this. As much as recessions usually lead to job losses, market declines, panic, and news media, you know, going crazy, it also leads to opportunities for those that are prepared. It also leads to building more millionaires than at any other time in economic history. It also leads to growth. It also leads to a lot of other things. So recessions, although they may be inevitable, they are where.

You show up in them, can determine whether they break you or they build you. It's up to you in every recession. Some people, being frank, are going to suffer. I get it. Others, though, they're going to soar. And the difference has nothing to do with luck. It has to do with preparation. It has to do with perspective. It has to do with patience, has to do with process. So don't wait for a storm to hit before you start to grab the umbrella. Let's figure it out. Now. Get ready now, because when the rain comes, you'll be the one that's planting the seeds that grow into your next season of abundance. All right. I hope that this helped. Like I said, they say that there could be one coming. I just don't know when. But they've been saying that for a little while. All right? But I do know that sometime it'll happen if you do the right things. When you do the right things and you follow what I'm, I'm doing here on this channel, on this show, or in my book, it will prepare you so when it happens, not only will you survive, but you will thrive on the other side of it. So I hope that this helps. Listen, if this helped and you're concerned about it or, you know, other people that are concerned about share this out, okay? Give it a, like, hit the subscribe button because I've got a ton of other stuff coming your way because I'm on a cruise crusade to light the path to financial freedom for a million families. I want one of those families to be you. I truly believe that a financial freedom is your birthright. I just want to help you claim it. Okay. And I think we start that by recession proofing our life. And, and so this is the thing that I want you to do. All right? I hope I get a chance to see you on your road to your financial freedom. And until then, always, always strive to live a life without losing. See you in the next one. Thank you for listening to the affluent entrepreneurs 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 your money Machine where we help you learn how to master your money, eliminate financial stress, and 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'd 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.