How to Build Wealth in a Recession

How to Build Wealth in a Recession

Jack Gibson

“This house is not going to work when we have this baby”.

That’s what my wife said to me in late 2007. At the time, I wasn’t quite ready financially to buy a new home. But with a baby on the way, and the kids' bedroom downstairs and far away from our Master bedroom, the floor plan of the bachelor-pad-turned-family-man home clearly wasn’t going to work.

I wasn’t motivated to do any home shopping, so my wife took the lead and came back shortly with a home she liked in a developing neighborhood close to the beach and downtown. “Okay honey, let’s put an offer in”, I said, finally letting in as I could see she wasn’t going to let it go.

We ended up closing and moving in by December 2007. We were excited for our new home, but little did we know that the economy and housing market were about to crash. The US, within a few short months, would be smack in the middle of the biggest recession since the Great Depression of 1929.

At the same time, we had steadily been working for years toward the Diamond level in our direct sales business. The Diamond level is essentially the top 1% and is based on hitting certain organizational sales targets. In April of 2008, not only did we welcome our first born son John, we also hit this long coveted goal. Life seems to often come like this: on the one hand we hit a huge business milestone, welcomed a new addition to our family, and moved into a nicer home; on the other, the home we just purchased was plummeting in value quickly and the economy started dragging on our business.

If you’ve read my blogs or listened to any of my podcasts, you know that I’m big on taking personal responsibility for everything that happens. We weren't about to place any blame on the economy for our situation. If it’s to be, it's up to me.

But not only did we not let off the gas, we worked even harder. The steps that we took during that Great Recession created the foundation of wealth that we have today. And that is the point of this blog, to help guide you through the one we may be going into if we aren’t already.

And if this turns out to be the “soft landing” that the Federal Reserve is trying to engineer, then this advice will serve you when the next one does come, as recessions are an inevitable part of the business cycle. I’m going to teach you not only how to plan for a recession, but what to do when you’re in one.

The pandemic has had a giant impact on the American (and of course, global) economy.

The war on Ukraine, the “breadbasket” of the world, has also caused huge, disruptive impacts on the global supply chain.

Inflation in the United States increased by 9.1%in the past year.

Cryptocurrency has fallen in value, across the board, as well.

Financial experts are predicting everything from an economic slowdown to a full-fledged recession. We really don’t know how our economy is going to fare in the short term.

That brings us to the questions that matter:

What’s a wise investor to do right now?

Do you need to stop investing? Stash your cash under your mattress and hope?

No, I don’t think so. As unpredictable as the worldwide economy is right now, you can still build wealth while we ride this out.

The key principle now is planning, building your knowledge, and positioning yourself to be ready to take advantage of possibilities that you learn about along the way.

As Paul Sumuelson famously said, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

What Happens During a Recession?

According to Forbes, “During a recession, the economy struggles, people lose work, companies make fewer sales and the country's overall economic output declines. The point where the economy officially falls into a recession depends on a variety of factors.”

We don’t know if we are in a recession, yet. This is why planning is so important.

How to Plan for a Potential Recession

1. Attack High Interest Debt

I’ve said it before and I’ll say it again: Identify your high interest rate debt (like your credit cards) and pay more than the minimum required payment. Ideally, erase this as soon as you can. You simply cannot consistently outpace the high interest debt with higher investment returns. (Check out Adam and Jen’s story for how this plays out in overall wealth building).

This serves two purposes:

  1. Reducing the overall debt payment period.
  2. Giving you some cushion when things get difficult.

After all, the extra you pay now can be shaved off when you need it later and still leave you paying your debts comfortably.

2. Stack Your Emergency Fund

The more you contribute to your savings account, the more peace of mind you can have, even during uncertain times.

If you’ve ever lost sleep over your finances and the future, you know how the lack of a safety net impacts your health, your well-being and your relationships. Even a 5% deposit of your wages will help build your emergency fund.

The easiest way to do this, in my experience, is to set aside a few hours to look at where your money is going, and cut any of those expenses that are not necessary. As subscriptions become more of a part of our lives (Netflix, Disney+, Telehealth services, etc.), you might be surprised at the amount of money you can save by canceling services you no longer use. Just this past week one of my friends showed me a Firestick that gives you 1,000 channels and all the streaming services bundled for $60 per month. I was surprised that it was legal! It had the feel of Napster (a file sharing site that got shut down in 2002).

3. Establish A Spending Plan

I’m a bit allergic to the word budget, as it feels too constraining to me. It’s like going on a diet: constricting is rarely sustainable.

So let’s look at your spending plan: Where is your money going? Do you really know? If you can’t say how much you spend monthly on subscriptions for apps, internet, etc., it’s worth re-examining those expenditures. They add up quickly!

The only way to establish a “budget” that I’ve seen work is to know exactly where your money is going, and that typically requires some kind of accounting or bookkeeping software. I’m big on Quickbooks online because it automatically downloads all my bank and credit card transactions, reconciles them once it learns my patterns, and with a click I can get a P&L statement (Profit & Loss) to show me each of my businesses cash flow, and not only that, for our personal household expenses too. This instantly tells me if we are creating positive cash flow each month or spending beyond our means.

What are your other major expenditures? How much do they cost per month? Is there a way to reduce those costs?

4. Downsize Your Lifestyle

Try to cut out anything you’re paying for that you can easily live without. Perhaps you change that weekly takeout to a once-a-month takeout. Maybe you can cancel your Netflix subscription and replace TV entertainment with fun outdoor activities. Each change in your lifestyle will add a few extra dollars to your savings account.

My family has made some of the following changes at different times: In the Recession, we got rid of my shiny BMW 330 and traded it in for a used Mercedes Benz. We meal-prepped and cooked at home more. We learned new tax strategies that saved us thousands and thousands of dollars. If we did take a trip, it was somewhere we could drive.

Trust me, these small changes did not downgrade our lifestyle; they only happily downsized it. Set aside time to figure out what those changes are for you, and implement them.

5. Widen Your Investment Portfolio

But with what do I diversify my portfolio? Great question. To answer it, I’ve created a free guide that gives you 10 actionable investments that can help you create safe, passive income streams. The good news is that there are several potentially great investment opportunities that can withstand the worst of a recession, if it comes to that.

If you follow the steps in the guide to reduce your debt, you may be surprised at the dollars you have left to invest. Once you identify those dollars, and make some changes to your lifestyle, you’ll want to get those dollars working for you to produce more dollars. One example would be investing in a property that can provide a steady income and a healthy return from rents.

You may also consider investing in stocks and bonds in areas that are virtually recession-proof. Sometimes, buying stocks and holding on to them until the worst is over will be the best option. After all, keeping the money safe for the future is the name of the game.

6. Invest inYourself

This is the best piece of advice life’s ever given me.

It is an especially good time to connect with a wealth strategist who has invested and grown wealth during previous eras of economic instability, and is still here to tell the story. Mistakes are great teachers, so if you see a shortcut to where you want to go, take it! That’s the entire point of wealth strategy and coaching, to pass along the knowledge and lessons we have learned the hard way.

It is also a good time to examine the professional growth opportunities in your field, or a field you have always wanted to pursue. Increasing the value you can provide for others, whether that is your employer or your employees, is always a good idea. Never stop learning. This is how we can provide value that protects us from being the first on the proverbial chopping block, and how we ensure we can recover when circumstances inevitably change (as they always do).

Entrepreneurs actually have some interesting advantages to consider right now, including less competition in your space, and an influx of talented people looking for work that inspires them. Also, no one is born an entrepreneur, it’s a thing you become. Maybe that opportunity is now for you? As the founder of multiple multi-billion dollar businesses, I understand the fear and the joy of taking that step, and I can guide you. You don’t need to do this alone!

What To Do When You’re In A Recession

Jim Rohn once said, “Think summer when it’s winter and think winter when it’s summer.”

He’s teaching us to be optimistic when things aren’t good, and to be pessimistic when they are, to help prepare us for the inevitable cycles of business and life.

When you’re in an economic winter, here are 3 important things to focus on to help you not only survive, but thrive, until economic summer comes back:

  1. Do not sell your assets:

One of the keys to building wealth is patience. It will require patience, potentially for an extended period of time, where you’ll need to wait for your assets to recover. One of our smart moves was to rent our homes out until the market recovered and it made sense to sell them. We had our 1st home rented out when we had our 1st son, and then when we went to upgrade in 2014, the market had still not recovered from where we bought in 2008, we leased it out for two years and by then it had recovered back to what we paid for it.

If your stocks or your crypto are down, do not sell them. You’re never going to build meaningful wealth if you’re selling into market weakness and then buying into market strength. Hold on to everything you possibly can and wait for the recovery that will happen.

2. Buy assets when they are on sale:

In 2008, the stock market crashed nearly 50%, and it really felt like it would keep falling. Things were not good. Let me tell you, it was tough to buy stocks. I’m sure looking back, one could say it was a no brainer, but that’s the benefit of hindsight. When you’re in the middle of it, it takes courage. As tough as it was to pull the trigger, we started buying up stocks at enormous discounts. Not only that, we ran options to generate safer cash flow, which are at higher premiums when there's a lot of fear and volatility in the markets, like right now.

Options are an incredible way to play an uncertain market. The option service I recommend has had a 98% win rate, and that’s through some extreme turbulence like  the March 2020 COVID-19 crash and the recent bear market we are in right now.

3.  Enjoy your life:

Just a few short years ago, my life was not so good. I had two felonies committed against me, and I was in rough shape. My entire worldview was uprooted. Growing up in a loving Christian home I had very little concept of the bad things people were capable of.

Even in the worst of it, I made a commitment to myself: I would squeeze every single drop of joy out of my life that I possibly could. I would not wish the current time away.

I had a loving family, a great business, and I was determined to not let the storms (or hurricanes) strip away my happiness. I can’t say that every day was awesome, but I’m grateful I made the decision to not let my current circumstances dictate how my life would go.

During a recession, things may get tough. Your business may take a hit, your investments may drop in value, and you may experience some disrupted cash flow.

What do the tough do when the going gets rough? We keep going! Go laugh with your friends and family, keep working hard toward your goals and dreams, and know that this too shall pass.

Wrapping it up, let me tell you, we build multiple streams of passive cash flow to buffer from these events, so get going on that, too. I’m here to help!

Whenever you're ready, there are 5 ways I can help you:

1. Learn the strategies to create multiple streams of passive income with my new book, Building Indestructible Wealth, here.

2. Build the foundation of your plan with my online learning course, The Indestructible Wealth Builder here.

3. Develop and implement specific strategies in real estate, stocks, and crypto to generate income. Learn how to buy early-stage assets that can 10x in value with my Advanced Indestructible Wealth Builder online learning course here.

4. Invest along with me. Join my private Premiere Mastermind group to get real-time alerts on pre-IPO's, stocks, real estate, and crypto.

5. Work 1:1 with me to get focused, intense guidance to turbocharge your results.