Before I get into my net worth update, I want to respond to a couple of questions I’ve gotten from people about how they can quickly “recession-proof” their finances. Simple answer: You can’t. Unfortunately, there’s no inoculation for living without a financial plan. This pending recession (which I believe is on the horizon) has been 11 years in the making, so we’ve had more than a decade to get our financial houses in order and have a plan.
It seems people are under the impression that the recession happens all at once. But it has been my experience that when the economy turns south it happens a little bit at a time. You’ll notice, for example, that the market is down more than it’s up. You may notice someone you know has been laid off or a business that you frequent is now closed. A recession is a slow boil and before you know it you are smack-dab in the middle of it. Don’t be a boiling frog!
I ran into a friend that was laid off and I was shocked to learn the layoff happened seven months ago. She is already in a recession. This person had been earning a high six-figure salary for more than a decade. She has a PhD and worked in pharmaceutical industry. She also had a very high standard of living (spending a lot of her earnings on non-assets) and had a low-level financial plan.
If you need $10,000 a month to “get by,” a $25,000 emergency fund is not enough. That’s what my friend had and now she is deep diving into her retirement account.
A personal recession can happen at any time. Are you prepared?
My finances are already recession proof because I have a plan for my money and it’s automatic (savings and investing). Every time I get paid, I become a little bit more fortified against a recession. Improving your financial situation is a slow methodical journey. You will need a plan If you if you hope to arrive at financial peace and independence one day.
Below are 5 steps to get started with that will put you on the path to recession-proof finances:
- Build a one-year emergency fund (total your monthly bills and multiply it by 12)
- Pay off debt (credit card debt, car notes, student loans and mortgage) and stay out of debt
- Max out your retirement account (s) (401K if available and/or IRA
- Invest the rest, no matter how small the amount. If you don’t know where, start investing outside of your retirement account then start with a Betterment brokerage account.
- Repeat steps 1-5 until…you are financially independent!
Becoming debt free, building a solid emergency fund, saving for retirement and building passive streams of income (that will eventually cover monthly bills), are the pillars of recession-proofing your life. But remember, it will take time. Outside of hitting the lotto or a receiving a major inheritance, there is no short cut. If you are not currently experiencing a personal recession, it’s safe to say one is on the way, so get started.
Finally, If you haven’t already, you should start tracking your net worth on Personal Capital. It was a game-changer for me. Being able to see all my accounts in one place and instantly seeing my net worth when I open the app has proven to be all the motivation I need. My net worth has grown every month since I started tracking it on Personal Capital.
Okay, time for the net worth update:
July 2019 Net Worth Update
Checking $ 500.00 (no change)
Savings $ 4,201.00 (+$76)
Business $ 4,891.00 (+$851)
MM/E Fund $13,127.00 (+$607)
Taxable Investment Accounts
Ally Brokerage $12,074.00 (+$1,141)
Investing MM $ 439.00 (+139)
Vanguard $ 626.00 (+$66)
Acorns $ 427 (+$60)
Bonds $15,801.00 (+$231)
SEP IRA $11,202.00 (+$284)
Traditional IRA $19,108 (+$749)
Credit Card: $107.00
- Checking: All savings/bills are automatically deducted from this account. Any money left over after deductions is sent to Acorns and the emergency fund.
- Savings (P to P): This account might end up reaching $5,000 because I’m looking to switch my brokerage from Ally to Merrill Edge to take advantage of free stock purchasing. I’ll need to have $20,000 across my holdings to receive 10 free trades a month. I’m about $3,000 short of that but hoping to get there in time for the new year.
- SEP IRA: The stock market sputtered at the end of July taking back most of the gains that I made.
- Traditional IRA: No big gains this month but the automatic deposit kept it heading upward
- Business Account: This account is finally headed in the right direction and if things work out the way I plan, I’ll be introducing a new stream of income to this account soon.
- The E/Fund: Haven’t had any reason to hit up the emergency fund. It continues to grow at a modest pace.
- Stocks (taxable): Purchased a few shares of AT&T, but I still have a long way to go before I double last year’s dividend earnings.
- Bonds: As you know, the interest rate on I-bonds was lowered to 1.98%; this is still way above what most major banks are offering in interest on savings accounts.
- Ally investment money: Trying to save $1,000 dollars to keep on hand for the next downturn in the market.
It is a fight to build wealth no matter where you are in the process. Everything around us conspires to take money out of our hands. But you must fight the good fight. Continue to save, invest, and grow your net worth even when it seems impossible. Save your pennies (copper) until they become dollars (cotton).