I am 37 years old. In my short working career thus far, I have lived and worked through two major recessions. The Great Recession of 2008/2009 and the Corona Virus Recession. The lessons I learned from 2009 have contributed greatly to the stability I enjoy today. Here are some of principles by which I now live my life:
- When it comes to recessions, the question is not if it will come but rather, when will it come. Recessions are practically inevitable and they actually happen more often than one might think. From a research project I did in business school, I learned that there is a recession at least once per decade.
- Murphy’s Law states that if it can go wrong it will go wrong. While I don’t necessarily agree with the theory that everything will go wrong, I do plan for the worst case scenario and do my best to hedge my bets.
- Before every major purchase ask yourself, “If I lost my job tomorrow, could I afford this?”
- The cause of almost all recessions is living outside of your means. Be allergic to debt. There’s no such thing as “good debt”. Pay off the mortgage as soon as possible- the mortgage interest write each year doesn’t off set the thousands in interest you pay each year.
- Hav a back up plan. Sometimes that back up plan can be your education, a side hustle, or perhaps a skill or hobby you can parlay into another career.
- Don’t be fooled. The ultra successful in the stock market don’t buy a stock or fund and hold it forever. Sell when the market is high and buy when the market is low. The key is to have that cash on hand when the recession hits to get in again at the lowest prices.
- Target date funds are excellent. I remember working in the private sector in 2009 and hearing the guys near retirement saying that they could no longer retire becuase their 401Ks have taken such a hit. At age 50 or 69, if you are as exposed to the swings of the market at you were in your 30s that shit is your fault. Adjust your holdings accordingly as you draw closer and closer to needing those funds.
- From everything I’ve read and from what I’ve seen in my life- people spend way too much money on their vehicles. If my paid off 2009 Ford Escape can get my and my family where we need to go, why would I all of a sudden need a 60K truck to do the same? To date, I’ve purchased one new car and that was using the cash for clunkers program that was offered.
- Recessions are opportunities. For those that plan and wait for the next recession they are great opportunities to buy things at rock bottom prices. Cash is king in a recession.
Generally speaking, I try to structure my finances that give me the most flexibility in my decision making. Having a high income is great, but I really believe having zero or no debt is more valuable. Expendable fixed monthly costs such as car payments, subscription fees, credit card payments are what keep Americans from getting ahead and out of the rat race. When your monthly expenses are low you have options and flexibility.
