Not how much money you make, save, or invest.
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This thought smacked me in the face the other day. All the people I know who seem financially well off haven’t survived a recession yet.
Anyone can get rich through a bull market or a period of prosperity.
You can keep getting rich in the short-term, but wealth is built in the long-term. In 2008, I witnessed the full force of a recession.
It blew my skinny ass off the concrete pavement. I washed up three doors down with my ego barely intact.
The recession taught me:
- Survival skills
- Risk management
- The financial enemy that is the ego
- How to lose
- How to rebuild
- How to fight
It doesn’t matter how much money you make. It doesn’t how many side hustles you have. It doesn’t matter if you make money by creating content. It doesn’t matter if you save more than you spend. It doesn’t matter if you are an expert investor.
What matters is whether you can take a sidekick to the face from a recession and not accidentally lose all your money.
The focus shouldn’t be on wealth generation.
The focus shouldn’t be on investing.
The focus shouldn’t be on good spending habits.
The focus must be on surviving a recession. Otherwise, every time a recession comes (roughly every 10 years) you’ll be wiped out or go backwards again and again. It will be frustrating as hell.
What does a real recession look like?
A recession is where there is a significant drop in GDP (Gross Domestic Product) in two successive quarters.
A recession looks like job losses, businesses going bankrupt, a noticeable drop in people’s optimism, homes that are forced to be sold, debt that can’t be repaid, some level of homelessness, a decline in people’s financial arrogance, and a sizeable drop in the prices of assets like stocks.
You have to try hard to see the bright side of a recession. When you do, everything changes and recessions become a human attribute you can use to survive almost anything.
During the Good Times We’re All Winners.
I don’t measure someone’s financial success during the good times. All you have to do during the good times is buy real estate or purchase stocks and you look like a winner… for a short time.
It’s whether you still have been financially savvy when the inevitable recession hits. That’s the true test.
If you hold onto your assets during a recession you’ve done well.
If you are able to buy more assets at a discount during a recession, then you’ve learned something many people don’t: how money and careful investing works.
During the Tough Times Your Risk Calculation Is Tested.
It’s easy to forget the last recession.
Because recessions only happen roughly every 10 years, people let their risk tolerance gradually spiral out of control.
Straight after the recession people are cautious. Within a year their level of caution begins to slide. Within two or more years they’re back to feeling invincible again and telling everybody how much money they’re making.
Careful risk tolerance is your secret guardian angel in a recession.
If you have spread your risk across multiple asset classes and if you’ve made sure you have a strong base of conservative investments, you’ll do well. You’ll have traded short-term gains for the long-term insurance policy of smart risk management which you can cash in during a recession.
A recession changes how you think about risk. Before a recession, your risk settings will likely be faulty. After a recession, your risk settings will improve if you’ve learned a lesson from the experience.
A Recession Is an Equalizer.
It’s like pushing the reset button on your Playstation.
You start the money game all over again after a recession if you haven’t run into one before. Right now lots of people are having their banks push their reset button without their permission. Such is the nature of recessions. If you’re not affected, this isn’t a moment to be cocky either.
Be thankful the recession has spared you thus far — it could be luck too. This is why I’m not interested in hearing about investing from young millennials who haven’t lived through a recession — or, who haven’t owned a business through a recession.
There’s just so much more you understand about how money works when you’ve had a recession bitch slap you in the face.
The nature of a global reset caused by a recession is that you can also start from nothing.
A recession is a brilliant time to learn a new skill or start a side hustle. While everyone is distracted by the recession — or by politics — you can be sitting in your bedroom and working on your craft. During this recession that’s exactly what I’ve done. I’ve done my best to stay away from the temptation of chaos… not always successfully, though.
A Recession Is Where Your Financial Education Is Tested.
A financial education prepares you for a recession. A financial education allows you to take advantage of the opportunities a recession brings.
You don’t need a fancy-ass university education to learn about money either. You can learn about money through Bloomberg, Yahoo Finance, and classic books about money. My favorite place right now to learn about money is through Real Vision Finance.
It’s important to understand no one source of money education will be 100% correct. Opinions easily weave their way into the tapestry of the finance world. That’s why it pays to learn from multiple sources. Then, curate those information sources and form a philosophy and way of thinking about money that suits your lifestyle, beliefs and goals.
“Pay It Forward” Is the Real Lesson of a Recession.
— Not how much money you make, save, or invest.
I’ve done pretty good during the latest recession. I don’t say that to brag. I say that because the biggest lesson of the recession has been one simple idea: to pay it forward.
Pay it forward works like this:
- Commit to creating a network of giving. (This network will bring hope and inspiration to complete strangers.)
- Do a favor for three people. The favor needs to be something significant that the receiver can’t do all by themselves.
- Once you do each of the three favors, you tell each recipient that they must do three favors in return (those favors can’t be directed towards you).
- The recipients of your favors go on to replicate the network. Before you know it, you’ve turned a tiny ripple into an enormous chain reaction you may never know the power of.
If you survive a recession that’s nice. If you help other people survive a recession then you’ve learned what having financial resources at your disposal can really do. Nobody cares how rich you are; they care about what you’re going to do with that money to go beyond your naturally greedy self.
You can have money. But it’s more powerful to create ripple effects of change.
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.