I’d Never Do THIS in a Recession

Whenever the economy crashes, people get scared. But today I want to show you the patterns that repeat over history and what you should do about your money. This video will show you how to thrive in any economy, not just a recession, not just when things are good, but always. And by the end, you'll have a 3-part plan to set up your finances, your career, and your life so you can stop panicking at every headline and finally feel in control. Plus, I'll share a story from the 2008 crash that completely changed how I handle my money forever. Let's get into it. Every time the economy crashes, you will see people panicking. They'll say things like, I know the economy recovered in the past, but this time is different. It's over. In 2008, it was the housing market collapse. In 2020, it was COVID. Now it's AI, layoffs, inflation, politics. And if you scroll online, the panic genuinely feels real. People are posting, I can't take it anymore. I'm cashing out. One of the most haunting examples I will never forget is reading the Bogleheads forum during 2008, 2009. This is a forum that's focused on sensible, low-cost, long-term investing. They're like the most boring people you could possibly imagine in the best possible way. They just invest for the long term. They do not get panicked. But guess what happens when you see the market going down 1%, 2%, 3% every single day for weeks and weeks and weeks?, you start to get scared. You start to question the very beliefs that you held dearest. And that's exactly what happened. We saw otherwise sensible people snap and sell everything. Those people will never financially recover. You can see it in the comments. One user whose username was ironically @eased sold 90% of his portfolio. Another named Greenie wrote, I totally freaked out and sold everything. Right before things were about to recover. Many of those people disappeared afterwards. We have no idea what happened to them. But imagine you had spent 40 years sensibly investing every single day, every single month. You knew to your core, I am a long-term investor. And you see an article that says, oh, the market's going down. You go, I don't care about that. Then you see it go down again and then again. And then you start to say, wait, I have a husband or a wife. We have a mortgage, we have kids, we have expenses. I'm starting to get scared. Maybe you stop eating out. Maybe you start to consolidate a little bit. But it happens over and over and over again. The market keeps going down. What are you going to do? Eventually, many people snap. Many people give up the values that they held dearest and it cost them millions. Now, many of these investors eventually bought back into the market later, but by selling during the crash, they missed the fastest, most dramatic part of the recovery. A costly mistake that often takes decades to recover from. Often you can never recover from it. For example, if an investor had $500,000 in the market in 2008 and they simply held on through the crisis without selling, they would have seen it grow to about $940,000 by 2014, almost doubling their money despite enduring one of the worst financial crises in modern history. Instead, many panic sellers locked in catastrophic losses. That's what happens when you let fear dictate your choices. I don't want that to happen to you. I want you to have unmovable, unshakable confidence in your beliefs. Even if things get bad, you know they will eventually get better. Fearful investors buy high when everyone's going, oh, the market's so crazy. They buy then. They sell low when everyone's scared, and then they repeat the cycle. That's why the average individual investor has horrible returns compared to a simple index. Index fund. They literally do everything wrong. I don't want you to do that. But those who stay calm maintain their wealth because they've already prepared. And that's the difference. Preparation. The difference is how prepared you are before the storm hits. The storm will come. We cannot change that. But we can be unshakably confident that we know how to navigate out of it. So the real question isn't if another downturn is coming. It's whether you will be ready. And that starts with your financial foundation, your war chest, So let's talk about how to build it. Before we do, by the way, what is your number one fear about the economy right now? Drop it in the comments. I want to read it. You know, it's amazing when I take a look at people's spending and I will see them just invisibly leaking out hundreds of dollars a month eating out. And when I ask them, what is your rich life? They never say eating 3-hour-old Chipotle. You and I want something bigger in life than just spending money on random commodities. Oh, Tide cleaning pods. So cool. Nobody wants Tide as part of your rich life. What we do want is to know that we have the right systems set up for our money. Am I automatically saving? Am I automatically investing? Do I know what my next step is? And most importantly, are we going to be okay? If that is part of your rich life, then join my money coaching program. You can join at iwt.com/moneycoaching. And one of my favorite parts of this program is the community of other people who understand I Will Teach You to Be Rich just like you do. Sure, we all need a little bit of help. We need accountability. We need to make some friends that understand it's cool to talk about building a rich life. We don't need to be ashamed of it. You will learn all of these things along with Q&A from me and support and step-by-step playbooks in the Money Coaching Program. Join today at iwt.com/moneycoaching. You know, when the market goes down, when a recession hits, most people make their worst money mistakes. One of the things people do is they panic sell at the bottom. Or they chase risky bets to make it back. A lot of times people are buried in debt with no savings to protect them. We saw this in the housing bubble of 2008. Families weren't just buying one home. They were buying 4, 5, 6, all on leverage. And on paper, it looked amazing. Oh my God, leverage is so cool. I only put $100 down and look at my returns. Yeah, leverage works on the way up. Did you know it also works on the way down? On paper, the very same people whose wealth was going like this Well, when the housing market collapsed, they lost everything. The higher you climb without a safety net, the further you fall. And meanwhile, families with one manageable mortgage and some savings, they kept their homes. They survived. Many of them actually thrived. And this is the power of a war chest. It gives you margin to protect yourself in a downturn and the flexibility to go on offense when everybody else is panicking. I understand why people do not want to build an emergency fund. It's a lot like flossing. I know I should do it, but I don't. Also, a lot of A lot of people have not mastered their own money enough to be able to set aside $100 or $500 a month for an emergency fund. Also, a lot of people treat you like a loser. I get a lot of comments saying, Ramit, you told us to save money, but the market's up 15%. Such an idiot. That works while the market is going like this. But the minute the market turns down, you will see, as Warren Buffett puts it, who has been swimming naked. I would rather lose a tiny little bit to investment returns by having a fat war chest of an emergency fund instead of putting everything in the market, knowing that I can sleep well at night when things go down. And they will, because nobody, not the government, certainly not some crypto bro on TikTok who has a GED, not even the top economists can predict when things will turn. But if you have a war chest, you don't need to. You are already prepared. So here's how to build yours. Automate. Transfer money into your savings and investments automatically. Save aggressively. You want to target 6 to 12 months of your fixed expenses in cash, just sitting in a high-yield savings account. That's it. Eliminate your anchors, meaning pay off your high-interest debt, those things that are holding you underwater. And finally, make sure you diversify. You want your investments to be well diversified, not chasing just one fad. Guys, I know it's not flashy, but it works and it gives you peace of mind no matter what the headlines say. Speaking of peace of mind, one thing that used to keep me up at night was worrying about my personal information getting into the wrong hands. And you can do this for yourself. Google yourself. You'll see your name, email, phone number, home address, family members. Yes, that is data brokers selling your information. And when your information gets in the wrong hands, you're at higher risk for phishing emails, scams, identity theft. That's why I personally use DeleteMe, this video's sponsor. It's a subscription service that goes out and continuously helps remove your personal data from the hundreds of data broker websites that profit off your information. Nobody has time to effectively do this themselves. This service does it for you, and my readers love it too. Check out this DM I got. A former employer, a major journalistic outlet, used it for me and still does. It wiped out what had been dangerously public available information, including my address, etc. And it was good because like many journalists, I had started getting harassing messages and death threats. This is not just about phishing emails or annoying texts. Your information out there can be a serious safety risk. DeleteMe has been the leading expert in personally identifiable information removal for over 15 years and was recently named by Wirecutter as the number one data removal service. And again, I use them personally. If you want to remove your personal information from the web, Go to joindelete.me.com/ramit and use code Ramit at checkout for 20% off a plan for you or your entire family. You can also click the link in the description below. All right. Now that you've seen how to strengthen your financial foundation, let's take it further because recession-proofing your life is not just about saving. It's about growing your income. When the economy gets tougher, it does not just get tougher in one industry. It often affects many industries. That's why if you're laid off in a recession, it can be incredibly difficult to get back on your feet. Not only are there no jobs at your company, there's no jobs in your industry and possibly no jobs at all. That means millions of people are looking for a job at the very same time you are too. You remember that game of musical chairs we used to play as kids? You don't want to be playing musical chairs with 3 million other people in America. Now, sometimes the only thing you can do is cut back on your expenses, lean on your savings and hope for the best. But hope is not a strategy. That's why I'm so glad you're watching this video, because I want you to also go on offense with your money. I want you to look at your income as a skill, and you can build the skill of increasing your income. You can do that by learning the skill of negotiating your salary, the single highest ROI skill you can learn. You can build recession-proof skills like sales, persuasion, adaptability, problem solving. And you can add income streams like side hustles or a small business that diversifies your risk. As an example, during COVID which affected essentially every single person on the planet, some people decided they were going to add income streams while working remotely, and many of those people have been rewarded handsomely. What I'm encouraging you to do here is not depend on hope and not wait for things to go back to normal. I'm encouraging you to go on offense and take control of your income. See this opportunity as building more skills. Now, if you're not sure about where to start with accelerating your career, I've linked another video below that can help you turn your career around in just 4 weeks. And now I want to share the mistake I made in 2008 and the lesson it taught me about not just surviving, but actually growing stronger in chaos. Before we keep going, I think you should subscribe because every few months The headlines are going to scream recession and panic and collapse. But instead of freaking out, you already will know what to do because you have this channel. In 2008, I was laid off and I had an emergency fund that I had saved for years and years. And I was so thankful because I did not have to make any decisions due to money. I had money set aside. But I got to tell you something. I was resilient and I survived. But surviving is not thriving.. And I remember sitting there watching the market go down and down and down. And I was thinking to myself, I know this market is going to go back up over time. I'm young. I have lots of time. These are once in a lifetime investment opportunities right now in front of me. The market is irrationally low. I know it's going to go up over time, but I can't do much about it except continue dollar cost averaging into the market. And for somebody who had a 40, 50, 60-year outlook, I felt powerless because I wanted to take advantage of this opportunity, but I didn't have the money to do it. So I promised myself I would never be in that situation again. And what I said to myself was, I'm not only going to build an emergency fund, which I had done, I'm going to build extra cash, a true going on offense war chest. And I set it aside. Now, fast forward to 2020. This time I had built a war chest. Of course, I was already investing. I was hitting the investment goals that I set for myself, but I put a little bit more aside. And when the market crashed, I didn't panic. I already had my emergency fund. In fact, I had my go-on-offense fund. I was ready and I invested. Is this timing the market? A little bit. And I'm going to admit, sometimes I break my own rules. But let me tell you why I was okay with this, even though I don't recommend anybody times the market. Every single month since I was 14 years old, I have been investing consistently. I hit my investing goals. I save an emergency fund. On top of that, the question is, what do I do with the extra money? And I decided rather than invest it, I'm going to set some of it aside and treat it as an opportunistic liquid cash account. And when the opportunity arose, I took it. I didn't just survive. I grew stronger. And I heard a powerful metaphor from a Navy SEAL who once said, when other people do pushups, they get tired. When I do pushups, I get stronger. I want you to think about how to turn a weakness into a strength. Here's a few ways you can do it. Build systems that grow in the background. So when you're unmotivated, your systems already handle things for you. Those systems include automatically investing, automatically saving, even automatically encouraging you to go to the gym. Cut out the noise. Find a couple of sources you trust and follow them. But much of the noise around investing is designed to make you scared. And finally, remember, this is actually supposed to be pretty hard. The most valuable things in life are often hard. We don't want things to be easier. We want to be stronger so we can handle them. You don't get to control the economy. I don't either. We don't get to control layoffs, pandemics, the Fed's next move. But we do control whether a downturn leaves us weaker or stronger. That is turning a weakness into a strength. If you want to go even deeper on this concept, I want you to come to my next live event. They are about real-world money topics like how to talk to your partner about money, how to invest, how to use money to live your rich life. You'll get to ask me questions directly and walk away with an actual plan. The link to join is in the description. And remember, the best time to prepare was yesterday. The second best is today. If you're ready to start, watch this video next where I'll show you how to automate your finances in under an hour.