There’s no doubt that a recession is coming. After 8+ years of expansion, the third largest in US history, it’s only natural that our good times (?) will soon be ending. When we have bloggers, such as Mr. Money Mustache writing posts about an upcoming recession (Great News: There’s Another Recession Coming), then we all know for sure one is on its way!
Mr. Money Mustache has these words of wisdom:
If you’ve been keeping an eye on the US economy in recent years, you might notice that things are looking pretty darned rosy. Unemployment is at its lowest level in 40 years, wages are rising, and house prices have not only recovered from their fiery crash of 2009 – they have had several years of record breaking prices in most regions, just like the stock market.
It’s a lot easier to fix your problems right now, with a stiff economic tailwind at your back, than it will be in just a couple of short years (or less?) when the high seas and lighting bolts and whirlpools are ripping at your pockets. Fair weather preparations include:
- Rake in your big paycheck while it lasts and don’t blow it on temporary luxuries
- Keep your living footprint efficient – in expensive cities this is a great time to rent, and not a great time to spring for the sprawling home of your dreams on a big mortgage.
- Eliminate any last shreds of consumer and student loan debt.
- With the stock market at higher price-to-earnings ratio than usual, there is less harm in paying off your mortgage earlier, keeping six months of living expenses in cash or money market funds, and other non-stock investments like rental properties in low-cost cities (where reliable rent is over 1% of total property price per month).
- Design your career and your self-employment side gigs so that they are resilient: multiple streams of income from different sources, and an easy answer for “What would I do if my job or industry ceased to exist?”
My own rule of thumb, as crude as it may be is HGTV. During the 2008 Great Recession, which hosted the biggest collapse in the housing industry, I don’t know how that cable television station stayed in business. Its whole core operating system is based on the housing market. No housing, no tickee. Yet, somehow HGTV hung on and did more decorating shows than renovating. Have you recently spent a Saturday afternoon watching HGTV lately? Their entire lineup seems to be an endless supply of young, fresh-faced, eager couples, intent on buying as many fixxer-uppers as they can, renovate them back from the bone up and then flip the house for a neat, clean profit. Sound familiar? Yup, it’s 2008 all over again.
Two indicators of a recession are the housing market and the car sales market. To me, the housing market has slowly gotten out of control again (see above). Perhaps, unbeknownst to you, BUT a lot of people lately have been getting easy credit car loans and guess what? They’ve been defaulting. Sub-prime auto loans (just like the housing sub-prime loans) have been on the rise since 2015 AND in equally rising default numbers since 2015. Why have these red flags gone un-noticed?
Also, you can’t walk away from a car loan default like you can with a mortgage default. When you take out a loan to buy a car, somewhere in all those papers you signed is a clause that states if your car is repossessed, you are still personally responsible for the balance of the loan and all the interest and related fees that go with it. Those collections and wage garnishments can go on for years, long after your car is gone.
Ouch. Looks like this recession is going to hurt. Literally!
So, as Mr. Money Mustache (and I) ask: should you be worried? No, of course not says the Mister. After all: who cares about the price of gasoline, or affording cholesterol pills, or how to make the next truck payment, when you’re a wiry and muscular Mustachian, riding your swift and sensible bike a few miles to work and banking almost all of your enormous paycheck every two weeks? As for me, I don’t ride a bike nor have truck payments BUT I do worry about my cholesterol pills and the price of gasoline. I’m on a fixed income and I do live from Social Security paycheck to Social Security paycheck. And it’s not enormous. The best way for me to prepare for the upcoming recession is to make sure I am no longer in debt, have ample savings in the bank and continue (no matter what) to live slightly below my means.
I know for sure a recession is coming. The only unknown is when. Statistics state it will be within the next two to three years. Personally, as the country’s luck will have it, it’ll probably be much sooner. In any event, I’m getting ready for it today. Paying down debt, reigning in spending, stockpiling as much cash as possible, de-cluttering and continuing to live small. That’s my key to a successful recession roller coaster ride. When you know it’s coming, it’ll be a lot more fun (if you consider recessions fun, that is) if you’re prepared.
Live well and prosper, my friend. Live well and prosper.