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A recession is defined as a period of economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. Simply put, a recession is a six-month period of rough economic times. The United States is not quite there yet, but we are almost certainly headed in this direction. With 36 million people out of work and so many industries still not ready to open back up, we have some tough times ahead.
But here’s the deal: Tough times are when fortunes are made. To quote John Adams, “Every problem is an opportunity in disguise.” This is when everyone is required to tighten their belt, trim the fat and think outside the box. Here are four personal finance adjustments you can make to take advantage of this economic blip.
1. Change the way you think, and focus on the long term.
I’ve come to realize that throughout my life, the way I’ve thought about something has really mattered. Whether positive or negative, the things I visualize in my head tend to occur in my life. Many people think that money is scarce and that they must hold on to everything that they get. Financially successful people understand that there is an unlimited supply of money in this world and that if they make the right moves, they can have as much as they’d like. Financially successful people see opportunities within every problem. Others see problems as another barrier to the things they want to achieve in life. The first step on your path to wealth is the hardest step. It’s taking charge of the way you think.
Financial success also requires more long-term decisions with your money. We live in an “instant gratification” society. By that I mean many of us are very short-term in our thinking and planning. We want everything today or tomorrow, or it’s not worth it to pursue. To achieve true wealth and freedom, you’ll need to focus less on the joys of today, understanding that you will benefit down the road. Wealthy people understand that the decisions they make today will benefit them for years to come.
2. Start a side hustle, even if you love your job.
I believe that everyone should own their own company. The company doesn’t need to be the next Amazon, nor do you need to leave your day job to start and run a business. Today more than ever, it’s easy to find something you’re good at or enjoy doing and make money from it. Always be looking at creating additional streams of income to support yourself and your family’s needs. To rely on your job as your only source of income is risky. As we’re seeing right now, a bad economic climate could put a dent in your salary or eliminate your job altogether.
Your additional business or side hustle doesn’t need to immediately replace your income. The idea is to supplement your primary income with the option of replacing it in the future. If you make $50,000 today from your job, having a side hustle that’ll produce an additional $10,000 a year is huge.
3. Take control of your retirement savings.
In the last three months, you may have lost your job and watched your 401(k) drop with the financial markets. Despite the heartbreaking loss to your savings, this may be a good time to take control of your retirement accounts. Your 401(k) performance is dictated largely by where your employer places your fund and a mutual fund manager you’ll never meet. This leaves you with very little control over your retirement savings and your financial future.
A Self-Directed IRA gives you another option. With an SDIRA, you make all of your investment decisions and take full responsibility for the performance of your retirement account. My wife and I both have SDIRAs, and we can invest in virtually anything we want and all with (retirement funds) pre-tax savings. We can invest in gold, stocks, bonds, real estate and even someone else’s business — none of which you can do in your employer’s 401(k) plan.
You do need to be aware of the IRS guidelines and make sure you don’t mix personal (after-tax) dollars and retirement funds, or you could risk tax penalties. Other than that, these plans are not difficult to establish, and they allow all the benefits of a qualified retirement plan.
4. Buying a home is still a smart move. Think ‘house hack.’
I bought my first home in 2006 at the age of 23. It was right before the last market crash, and I saw the value of my house drop 20% over the next several years. Most people would have put their heads down during this time, but I didn’t have any regrets whatsoever. Here’s why.
• I bought a two-family home. I lived in one unit and rented out the other unit. My tenant was paying 65% of my mortgage from day one, and that percentage only increased over the years. I also had three bedrooms in my apartment unit, two of which I rented out to friends. I wasn’t worried about the crash because my living cost were 100% covered.
• I understood that the U.S. economy works in cycles. By this I mean we were experiencing some rough times in 2007-2010, but I knew they wouldn’t last forever. The country would recover, and home values would start to swing back upward. I believed this so much that I bought two more rental homes during the next several years.
Economic cycles happen. Markets crash, and industries change, but people will always need a place to live. Buy a place that can help make you money or at least cut down your cost. Like the last one, this recession will lead to many opportunities in the housing market. Make sure you have your eyes open and are ready to jump in the game.