How To Prepare For A Recession | Incite Tax
Ryan Vaughn covers recession prep basics like emergency funds and debt payoff, then pivots to the counterintuitive part: don't cut all expenses blindly. He grew his firm during the 2008 crash by creating client value instead. Track the right metrics, offer recession-proof services, and balance defensive moves with growth.
Chapters
Hello. How to be prepared financially for a recession? That's the question. Now, I'm, I'm going to start with the doom and gloom answers, as I think of them, because that's the initial response I know that the questioner is looking for. Starting there, first thing is you need an emergency fund. This is not anything new. The financial celebrity gurus of the world have been talking about this for a long time. I mean, it might even go as far back as The Richest Man in Babylon, which is a great book, by the way. So have an emergency fund. And you want that fund, you want it created before the recession happens. Those who lived through COVID, for our clients, very specifically, I'm thinking about our gym owner clients, The government forced them to close their doors, meaning for a lot of gyms, it's hard to earn revenue when your source of revenue is denied opportunity from the government. Those who had an emergency fund were able to survive. It wasn't easy, but they survived. So an emergency fund's really good. If you can, try to get rid of your high-interest debt as as much as possible. Interest rates are potentially going to continue to increase during the recession, during a recession. If they're still relatively low, you may look at doing a consolidation loan to pay off high-interest credit cards if you have those, obviously with the commitment and plan in place to not accrue any more debt on the high-interest rates, but if possible, getting rid of the high-interest rate debt. Is a good step during a recession because you don't want that hanging over your head when you may have uncertainty of your income. Buy in bulk whenever possible if you can afford to do that. Usually there's some cost savings buying in bulk. Buying generic brands also helps. Look, a lot of companies have this. Walmart, for example, has a Great Value brand, which is literally a product that has a name brand and Walmart just puts their Great Value brand on it. Black& Decker and DeWalt, that exact same company, 2 different brands. So a lot of times it's the same product. So maybe if you're trying to cut back on costs, look for the generic brand. A lot of times it's the exact same thing as the name brand, just less expensive. Uh, now with the gas prices as they are If gas prices are high during the recession, consider the cost. Compare the cost of driving to the store to do an errand versus if a delivery is an option. Is free delivery an option? So in which case, free delivery is less expensive than gas. Therefore, you have some cost savings there. I know at our firm, for example, we have a lot more client— a lot more of our team taking advantage of 2 days of work from home during each week because they're saving gas money and that they want to do that. So those are the doom and gloom answers. What I don't love about that though is it's like, you know, the world is ending. It's about cutting expenses. The same principles apply to business where we believe in cutting expenses. We want to make sure that if we have expenses as a business, that they're helping us add clients or they're helping us retain clients. If they're not one of those 2 things, they're probably not necessary. Maybe there's something like that that exists in your personal life. Is it adding to your life, or is it helping you maintain the level of comfort that you want? Or ultimately, is it, is it an unnecessary expense? So we believe in cutting expenses, but there is a point. We don't believe in cutting all expenses. That's why we preface what we're looking at from a business standpoint with the qualifications. Is it helping me add clients or is it helping me retain clients? If it's not, we got to cut that expense. It's not productive. Cut all nonproductive expenses. That's another thing you can do in recession, but you can't cut your way to growth. If you have a vision for your company and that vision is higher income, bigger team, Larger company, bigger impact on the people you want to serve. You can't cut your way to that. Yes, you need to lean out, cut the fat, right? Leave just the muscle. So we talked about the cutting expense, but I don't want that to be the mindset. Look for opportunities. What are the opportunities out there? I started my firm, just me, during the housing crash of 2008. This was like what led to it was banks just saying, free money, let's do these ninja loans, no income, no job. Oh, you don't have any? Just tell me how much you make and we'll go ahead and give you the loan. Shocker that they had a lot of defaults on that. Anyways, so then they started implementing more stringent requirements to getting loans and everything crashes and we go into a recession. I grew my business during that time period by a lot because I was looking for opportunities, because my mindset was regardless if you're in a recession or a booming economy or a Great Depression, if you are creating value, that value will be compensated. That is a principle that exists regardless of however the economy's going. So we went out, we tried to create value. Now for us, going into, say, a new recession, our focus is going to be providing services that help clients stay out of the recession or allow the recession to not impact them. So that is focusing on, let's make sure you're cutting the right expenses, but let's look at your forecasting. How does the forecasting look? Are you forecasting the right things? Are you now matching then what you did to what you forecasted and then using that to make decisions. Do you have the proper KPIs that you're tracking? All those things. So we'll focus more on services like that because that is gonna be of value, more value to clients right now as we head into a recession to help them recession-proof their business versus just focusing on, you know, maybe businesses during a booming time are like, how do I just get more sales, more sales, right? So focus on opportunities. I think that's a better mindset. Because again, creating value is going to be something that's always rewarded regardless of how the economy's going. And then the last thing I'll say is talk to a financial advisor, especially if you have a 401 or you have things that are already invested, or you know that you still have cash flow to invest. I feel like I'm pretty good with money. I still rely on a financial advisor and we talk about things. And based on the movement of the recession, there's better things. He's suggesting better things to put my money in than maybe where it currently is sitting. If you want a good recommendation, let me know. I'm happy to share that with you. Cutting expenses. I talked about that. We have a free resource. If you go to insighttax.com/wealth, you can find a lot of free resources that we offer. One of those being the way to analyze your expenses to make sure you're cutting the nonproductive ones, but keeping the productive ones. So hopefully that helps with maybe if anyone's feeling anxiety or anxiousness of a potential upcoming recession. I mean, just keep in mind, while in the '08 housing crash that led to a recession there, The banks changed the way they did things and that kind of started things, right? Giving out free money and no income, no job loans to then having more stringent requirements. We just passed a cycle where the government gave out free money and now the mortgage or interest rates are going up, which means mortgage payments are going up. So the same house The same $400,000 home before the interest rate went up, say the payment was $2,000. Now that the interest rate went up, the payment for the exact same house is $2,400 just because the interest rate went up. That is known as inflation. Inflation sometimes leads to recessions, especially when it's not a controllable inflation. So Things are happening that look eerily similar to what happened in 2008. So prepare, get emergency funds, but look for the opportunities, figure out what services you offer that are still gonna be of value to people. Maybe you have to change the way you deliver that service so that it's more affordable to the people you wanna serve, or maybe the people you're wanting to serve aren't necessarily gonna care about the price because the value's there. And it's going to help them. So those are some ideas. Remember, profit is a choice. Have the courage and wisdom to choose it.
