Is A Recession On Its Way?

expansions-1There’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.

 

 

8 thoughts on “Is A Recession On Its Way?

  1. I rember one pre-recession HGTV show In particular. It was called “What’s My House Worth?” Homeowners would sink a bunch of borrowed money into home renovations hoping to increase their homes’ value enough that they could either flip the house or — horrors — qualify to borrow even more money to send thier kids to college, buy a better house or take a dream vacation. The hosts would come in after the fact and give appraisals. Sometimes the owners had made improvements that cost a lot but didn’t add to the homes’ market value. Tough luck. No college for Susie. I think a lot of the people probably ended up in foreclosure when the housing market tanked.

    Like

    • Hi Bonnie. I faintly remember that show. Imagine that? Unbelievable. Joanna and Chip Gaines got out of the flipping house business. They’re more settled down in brick and mortar companies (cupcake cafe’, magazine, merchandise storefront etc). In times of a recession, almost everyone has five bucks for a cupcake. Remember last recession it was chocolate chip cookies. Makes people feel good that they can afford that little ‘luxury’ in hard times.
      Just sayin’
      Hold onto your hats. It may be a bumpy ride.
      Thanks for your comment.

      Like

  2. Hi Cindi, I think it’s absurd to pay five dollars for a cupcake, especially when the grandkids only eat the frosting! I get my cake mixes at 75 cents to a dollar now and add Aldi’s eggs and oil. Always can freeze some and pull them out when the urge strikes! The last twelve mixes ran 29 cents each with coupons hanging on Pillsbury display at Walmart and I use at Shop Rite! Cha- Ching!
    There is some other ways to recession proof yourself. Be on the look out for ways to improve the interest rate on your savings. Take advantage of promos from different banks on checking and savings. Dividing your money in savings to when you will need it for cost of living increases and if you have CD’s know the penalties if you have to cash them in early. Some retirees view their Roth IRA as their emergency funds since they do not have any federal tax and do not impact Social security taxation.
    Mr Money Mustache suggestions IMHO are always a good lifestyle for being in control of your destiny.
    Two interesting articles at the balance.com I read Are: who is the middle class and who is considered wealthy? sincerely, Lara

    Like

    • Hi Lara. I absolutely agree with you about the cupcakes. But we’re not talking grandkids here or us either. It’s during a recession, some people like to treat themselves to a five dollar luxury (to them) item. For some reason, this makes them feel better about themselves. Why? I have no idea. The last big recession, it was chocolate cookies (Mrs. Fields) that helped people cope.
      Right now, banks here are offering CD’s with 2% interest rates. I’m going to check out those two articles you suggested. Thanks (as always!!!)

      Like

  3. Interesting that a five dollar unhealthy item could make someone feel luxurious! I always put Extra five bucks in one of my many pots for specific goals which my brother could never understand how we could afford the things we did on a cash basis at our middle class income! lara

    Like

  4. I think everything is cyclical. Now that we are getting a bit older, my resolve to pay off debt (car loan) and our home is at the top of my list. Of course, we don’t need this large home, and could sell if need be. A good market is the PERFECT time to get finances in order. I’ve just paid a huge chunk to my car loan, and have plans to have it completely gone by October 1. 3 years ahead of the original plan. I’ve switched to personal cash to keep spending in check. Fingers crossed.

    Liked by 1 person

    • HI Sharon. If Trump can get the personal and business taxes down, we’ll be golden! Richer than we could possibly imagine. Fingers crossed for that one as well as daily prayers. Amen to that!
      If not…….recession…….ugh.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s