Reduce Debt Increase Wealth

Recession

December 25, 2022 MIsterchuck Season 3 Episode 145
Reduce Debt Increase Wealth
Recession
Show Notes Transcript

Recession or no recession what to do, but first what is a recession. Then recession proof personal finances to get by until good times are back.

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https://www.investopedia.com/terms/r/recession.asp By the Investopedia Team

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Charles McDonald:

Hello, I'm your host, Mr. Chuck, I retired accountant turned truck driver, I reduce my debt in a relatively short period of time, debt reduction to achieve financial freedom takes commitment, confidence, determination recession, recession or no recession, what to do. But first what is a recession, then recession proof personal finance to get by until good times or bad. And my show notes I have a link to investopedia.com terms reception that as P recession is a significant widespread and prolonged downturn in economic activity, a popular rule of thumb is that two consecutive quarters of decline and gross than domestic products, GDP constitutes a recession. Recessions typically produce declines and economic output, consumer demand and employment. So there is definition of recession is always being changed by those in power in Washington DC. We already had two consecutive quarters, the decline and gross domestic products. And that happened the first and second quarter of 2022. But yet the government is telling us we're not enter recession, we do have problems with inflation. This is the highest rate of inflation since the 1980s. And what's going on the feds are trying to increase the rate interest rate that banks have borrow money from the feds so that that will increase the rate of interest when you go to get a loan. They're doing that because they say the economy is too strong. But yet we're in some type of recession. How do we identify recessions? While this is what I do, our retail stores laying off and better yet, our retail stores closing retail outlets, the Bed Bath and Beyond is closed I think was 100 plus some retail locations. So that by itself means that maybe the retail industry is not doing so good. And with the increase in interest rates that's causing your mortgage rates to go up. What's gonna happen, there's gonna be less demand for housing because people can't afford to finance now because the interest rates are getting higher. So people are pulling back by buying homes. So the start of new homes is in decline. And when that happens, that means you have tradesmen, people in the construction industry are starting to feel the pinch and being laid off. The only ones that are not hurting are the ones that work with existing homeowners to do home improvements, or repairs to homes that are already there. But a lot of construction workers are working a whole lot less making less money. And that's the cause of the increase in the rates for mortgages. Also your inflation is causing the price of gasoline and groceries and every day needs to go up. Because oil is the leading factor in that everything gets taken to a store by a truck or transported either by truck, rail or ship. They all use diesel. So if the price of diesel goes up, the price of transporting goes up. Thus, the price of all those goods will go up. And then increasingly the price of goods made from oil which is very many products are made from oil products or byproducts. So price of all those items are going up. So with the price increasing in prices across the board, and people who are living paycheck to paycheck, which is roughly six out of 10 people in the United States are 60% that means they have less money available to buy the things they may want because All the money they have is going to provide their needs. And then the long term government spending also is causing a recession or the prices to be increased, because they are competing with the private industry to buy goods that are needed to do the projects they are funding. Thus, that's making a shortage of those goods. Thus, the prices of goods are going up. Course COVID didn't help any, with everybody out of work, and not making a whole lot of money, then the supply shortage came into effect, all these things are driving up the prices. Okay, because recessions represent an abrupt reversal of typical prevailing growth trend that declines in economic output and employment, that they cause conspire becoming self perpetuating. For example, layoffs caused by diminished consumer demand can hit the income and spending of the newly unemployed depressing demand even father, so those who are unemployed can't afford to buy the once, because all their money is going to provide for their needs. So all these things together is what a recession is all about. The auto industry hasn't shut down much yet, because they were so far behind and producing vehicles in 2021, and 2022, because of the chips, shortage of supply shortage, they didn't produce as many new vehicles as they normally would have. So the delay in the auto industry, lay them off, and it's gonna help keep the recession from getting any worse. But it could catch up with us, and either 2023 or 2024, when the auto industry has more supply than the man, if you want to know more about the recession, then check out this and best the pdf.com recession article that I'm referring to. And so you can find the link in my show notes. So what can you do on your personal level, to offset the effects of a recession, the first thing you need to do is pay off all high interest, credit cards, or interest personal loans, high interest personal loans, because then that will free up money, so you can provide for your needs. And needs are housing, transportation, clothing, and food. And as the prices of everything is going up, more of your income is gonna be devoted to covering your needs. So that's what happens when we start into recession. How can you offset that? Well, if you don't have any debt, and you have a large emergency fund, three to six months worth of your expending your your expenses, you're probably sitting pretty good. Even though the prices are still going up, the effects won't be as bad unless you're unemployed. And then you can use your emergency fund to help you pay for your needs. In that particular case, I'm just happy that I have all my debt paid off. So I don't gonna feel this as much. But still, the price of gasoline is going up. So I limit my travel, the price of foods going up, you can't really limit how much you eat. But you start looking for things that don't cost as much so that you can still get by with enough food to survive. A lot of people have gone to plant in the garden. It's a little late now but then spring, you can plan ahead and maybe do a garden of your favorite foods. Foods that are sustainable, so you won't starve would be potatoes, corn, tomatoes, cabbage, and there's some other ones but that's just the ones I can think of off the top of my head. They're easy to grow. And you can grow on much cheaper than grow buying them at the grocery store. Like if you have a potato that's turned green. You can plant that in your garden and one potato will then grow in and maybe become eight to 10 Potatoes thus giving you some food to eat And once they are grown, it takes a couple months for that to happen. There is a delay on the garden, but you can help keep your grocery costs down. By having a garden. growing tomatoes is fairly easy. Growing, potatoes are easy growing corn is easy. Grind beans, whether it's green beans, or whatever type of beans you like, are generally crops that are easy to grow. And it doesn't take a whole lot of knowledge or effort to do it. You just need a place that's getting full sun most of the day, water occasionally, if it's not raining out, and before you know it, you'll be having crops, it'd be dig and crop potatoes out your garden, you'd be eating tomatoes, beans, and help subsidize your diet. With all that said, that's that very much. But that's all I had to really say about recession. I guess we're going to talk about if you really want to be recession proof, you need to be tracking all your spending, so you know where your money is going, you need to cut out spending that is not a need. He keep things down to the necessities. And you have as least amount of debt as possible. One of the debts, you probably don't want to pay off if you have a mortgage that's less than three or 4%. He wants, you don't want to refinance it at a higher rate, because it just cost you more money every month, and you just be paying out more interest. Keeping a low interest mortgage, maybe you can focus on paying off who are higher, once you got your credit cards paid off your higher interest loans on auto loans, or your line of credit, that might be a adjustable line of credit where the interest rate is going up every six months or so. So that's what you can do. And then keep a budget or a control center, as I like to call it, where you can monitor everything what's going on, on each category that you have set up. And you can see maybe you're spending too much in a particular category, and you can take steps to decrease it. So you have the money the following month, to pay for all your needs. There's some things that you can cut out of your budget, and do away with entirely. And there may be some things that you can reduce the costs, such as cable TV, he can get rid of cable TV and start streaming at much cheaper cost. And you basically can watch the same things. This recession is a little bit different than past recessions. And what I mean by that is in past recessions, we had layoffs from major industry such as the auto industry, or the housing industry or the finance industry, the cause whatever the cause doesn't really matter. But we had lot of unemployment, which caused people to pull back from their spending, which cause a reduction in the oversupply. So prices would go down to try to get people to buy things. But it wasn't working. So the Fed would then lower the interest rate. But now we're at a start a recession. There hasn't been mass layoffs. And the main reason that I believe is because when COVID Ed, a lot of people were unemployed, some temporarily some for up to a couple years. And Baby Boomers decided they weren't just retire and not go back to work. So now we're in a situation where we don't have enough workers. So we still have a relatively low unemployment rate, even though some industries such as the housing industry is being cut back on because people are pulling back on their buying due to the higher rates of interest and the Fed is increasing interest rates. Now instead of decrease in which will be normal, and a normal recession. So we got to watch out for other things, to give us an indication if the recession is getting worse or better. And one of them would be the auto industry. It may take up to another year before wore the there's an oversupply of new models on the market. And once that happens, then the manufacturers will start laying off or reducing production. And once that happen, all their suppliers will start laying off. And it's a domino type of fact, the suppliers will lay off, the auto manufacturers will start laying off, and people will pull back even more less people would be buying things. And the major reasons because everything's costing a whole lot more due to the higher rate of inflation, the feds are increasing the rate so that the mortgage rates are going up, which is gonna cause more layoffs in the construction industry. So you need to keep an eye on what's going on. If the auto industry starts laying off, or even slowing down, and other industries start slowing down, and you see less jobs available, or at least jobs that you would normally want to have. And but a lot of jobs that you don't want to do such lower paying jobs in the hospitality industry, or in retail, they may not lay off because they don't have enough workers to start with. But that doesn't mean they're not going to cut back, I noticed that the most of the retail stores that I go to are having 20% off sales 40% off sales, and this was in October. And way before Black Friday deals then the Black Friday deals are starting much earlier, to try to get people to start buying things so that the retailers can make their profit and not have to lay off. So we're kinda in a can of worms right now is really not sure what's going on. So what can you do to prepare? Well, one of the first things since interest rates are gonna go higher, their credit card, interest rates are going to increase much faster. So the if you have credit cards that you're carrying a balance on, you need to get serious about getting them paid off. And once they have your credit cards paid off, you need to look at other loans you may have that have adjustable rates as equity line of credit on your home, get that paid off or pay down as much as possible, and increase your emergency fund, increase your savings account, because you never know what's gonna happen. If you work in an industry that layoffs are common, then you must be prepared for a time, at least six months where you may not have work. Or you may have to take a job making a lot less money. So you need to be prepared for that way ahead of time. Also, increase your savings account, because when the prices keep going up, your cost of heating and cooling your home is gonna go way up, the costs of putting gasoline and your cars, the cost of everything related to oil is gonna go up. If you need new tires for your car, do it now, because the tires are gonna get a lot more expensive. So you need to start looking ahead, plan ahead about what you need to buy, to get buy, save your money up and try to pay cash for as many things as possible. And you got to quit using those credit cards, and quit and borrow money to get by on you don't want to use a credit card to pay for your needs such as food and groceries, you need to try to have an emergency fund to do that for you. Even if you don't get laid off, you're probably not gonna see any pay raises for the next year or so. If you just got a pay raise, consider yourself fortunate because it may be a while before you see another pay raise. Another indicator that we might be in recession is freight coming down. I saw FedEx and UPS are saying that their freight is down and it's been down for the last quarter or so. That is an indication that people are spending less so then that's gonna cause and in fact in the economy, or the retailers or whoever is gonna start slowing down. If they're manufacturing they're gonna slow down their production because they They don't want to create too much inventory, where they have to slash slicer, prices are so low to get it sold, that they don't make a profit. Because if they don't make a profit, they're not going to stay in business very long, he can weather the storm, the E must be prepared, you must look at the indicators that are being out there in the news, and be aware of what's happening within the economy. And plan ahead. That's all I can say. I'll be back in one moment with my final thoughts. If you're interested in learning about an online software that helped myself get out of debt, it does tracking, budgeting, and keeps track of all your assets and all your debt. And even tells you how much and when to transfer money into your savings account, and how much and when to transfer money to your debt, and which debts to pay off in order. First, it's not cheap. It's a one time payment. But it will definitely be an investment, something and yourself and an investment in your personal financial life. If you're interested, send me an email at reduce debt increase wealth@gmail.com. And I'll send you the information about this online software that worked great for me, the future is always uncertain. And knowing what's gonna happen in future is you it's a guess. So you know, just be prepared with your own finances, to weather whatever is coming forward. So if you're thinking that we're in a recession, or we'll be in a recession, because all the economic analysts are saying, we're gonna be in a recession in 2023, I believe we've already started into a recession. So look for indicators in your news. Occasionally, if you notice, one industry is laying off, that's an indication that recession is getting worse. If the Feds quit raising the interest rate, that's another indication they think the economy could be getting worse and the everything is starting to slow down. Even if the inflation rate is still up over seven or 8%, they may quit increasing the rate of interest that you borrow money on. So be be prepared yourself. And the first thing you need to do is start tracking everything. And the old days, we call that a check register, where you record it every check everything that went into your checking account and want out of your checking account. Today, that's much easier, you can use an app, whether it's an online app, you download it or whatever, whatever you let works for you is the most important, but not only do you keep track of money in your checking account, you need to keep track how much money is in your savings account, how much spending you're doing on all your credit cards, what the balance on your credit cards are and when they are due. Once you have that all done. If you're using an app, you can recreate a report by category. You can use that information to control to create your own control panel. Some people call it a budget so that you can monitor month to month what's going on within your own finances and crease your emergency fund. Slow down on your spending. Be prepared for the worst and hope for the best. And you'll be glad you did. So