Message from the CEO: Your Recession Checklist

Hello FinGym Family!

We joke at The Financial Gym that as Financial Trainers, we’re like the backseat driver on your life’s journey. For over seven years now, I’ve been riding in the backseat; and as a backseat driver, I feel as though my biggest job is helping my clients see the obstacles ahead of them so that they can avoid costly detours on their life’s journey.

Just last week, a handful of my clients emailed me about a potential recession and asked me what steps they needed to take to avoid challenges that could arise from this. I realized that the message I sent to them, would probably benefit our greater Financial Gym family, so I’m sharing my thoughts here with you.

I’m not certain we’re heading into a recession, and anyone who tells you they know for a fact that we’re heading into a recession is lying. No one, including the Federal Reserve Chairman, has a crystal ball and knows how all of the economic, social and political factors are going to come together to impact the US and world economies.

Our last true recession began in 2007. I was working for Bank of America at the time and very few people knew the recession had begun; and even when people knew we were headed for a recession (after the fall of Lehman Brothers in September 2008), no one knew how bad it was going to get. Even the hedge funds that bet on the fall of subprime mortgages and the financial markets didn’t guess the degree to which it was going to fall.

I don’t know when the next recession will begin or if we’re in one now, but what I do know about recessions is that they are serious and it’s not a word that pundits on television should throw around flippantly to scare people because since the Great Depression, which started in 1929, the U.S. has only experienced 14 recessions. Of those 14, only five of them lasted more than one year. Most recessions last an average of 8 months. So even if we head into a recession, according to history, we’re not likely to stay in one for a prolonged period of time.

Given this information, if you’re concerned about a recession, I believe that you should have only two items on your checklist.

1. Do you have a fully funded emergency fund?

During recessions, you need to be concerned about job stability and as a freelancer, your ability to continue to collect payments. The best way to hedge against job instability, is to have a fully funded emergency fund. We like our clients to have at least six months of their monthly expenses saved in a readily available fund, preferably a high yield savings account. If you think we’re heading into a recession and you want to be extra safe, then you may increase your emergency savings to 8 months or longer.

We have had plenty of clients lose jobs in the past, and the best email any trainer can get is the one that says “Thank God I have my emergency savings to weather me through this tough time.” If your emergency savings is not where you’d like it to be, there is no time like the present to start focusing on it. Cutting back on unnecessary expenses and lowering your monthly bills as much as possible will help you build it up faster.

We just finished our Summer Promo rate; however, we’re going to extend it this next week if you’d like to join and recession proof your financial life, we’d love to help you. 90% of our clients hit their financial goals and fully fund their emergency savings within their first year of working with us. You can get started by scheduling your free consultation call here.

2. Are your life goals up to date?

If you have money invested in the stock markets in brokerage accounts or retirement accounts and you’re wondering about selling or readjusting your asset allocation, my response to you is “When do you need this money?” in other words, when are your life goals going to take place. If you have life goals like buying a house, getting married or starting a business that are going to take place in the next two years, then this money should really be invested in cash or something short term, specifically because of situations like this.

If your life goals are between two and five years, then you may want to think about a more conservative asset allocation, depending on your risk tolerance. However, if your life goals are beyond five years out, then the best thing you’re going to do is avoid looking at your statements, watching CNBC, and doing anything rash like selling at the wrong time.

I distinctly remember sitting on my trading floor of Bank of America in March of 2009 looking at my 401k that was valued at $125,000, knowing that it had grown to as much as $250,000 a few years before. The joke at the time was that your 401k was now your 201k. It was a joke, but it was also true. I was 31 at the time and knew that I wouldn’t need those funds for at least 30+ years, so I stopped looking at it and by 2013, right when I had the crazy idea to start a company, this account was back to $250,000.

On average, whenever the stock market has corrections, meaning that the values drop, it will recover in two years. 2009 represented one of the worst market corrections since the Great Depression and it didn’t recover in two, it recovered in six years from the start of the recession and four years from the bottom of the recession. The people who truly “lost” during this period of time were the people who sold too soon; because just as it’s impossible to predict a recession, it’s impossible to market time the highs or lows.

Recessions are scary times. I’ve lived through five. I’m not going to tell you it’s enjoyable. I will tell you that as long as you check these two things off your checklist, though, you will be prepared to weather through it; and will come out in a better place whenever we come out of it. So I don’t know when the recession will start, but I do know that you have control of these two items on your checklist and now is as good a time as any to start making sure your personal finances are ready to take on the next recession whenever it does happen.


Shannon McLay

Founder and CEO of The Financial Gym

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