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Money Girl
068 MG What is a Recession?
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Contact us before canceling entire account to continue bill credits to credit, stop and balance and report finance agreements due. Welcome to Money Girl. This is guest host Andrew Horowitz from the Disciplined Investor Podcast. And today on Money Girl, I'll be talking about what that dreaded R word means to you. Recession, recession, recession. Everyone's been talking about this topic lately. Some say a recession is almost here. Others say it's already begun. But what is a recession exactly? First, let's get to the definition of recession and then I'll give you some tips on how you could recession-proof your life. Well, technically, a recession is when GDP or gross domestic product is showing two consecutive quarters of negative economic growth. While they're extremely unpleasant, recessions are a normal part of the business cycle. And typically, well, they last anywhere from 6 to 18 months. What makes a recession noticeable to you and I is, of course, when it starts affecting our wallets. So how can you spot a recession before it comes? Well, there are a number of ways. First of all, the obvious way is to watch GDP. You can find these numbers anywhere online, a good website like briefing, dismal, Microsoft. If there's a sudden drop in domestic product and production, there's a chance recession might be coming. But you have to be careful in making those assumptions. Do your homework first. Maybe something fishy is going on with the government policies on foreign trade. Maybe a series of recalls and layoffs and outbreaks of illness have thrown things out of balance and they'll quickly restore themselves in the following quarter. There are thousands of factors that go into GDP that really sometimes can be difficult to determine whether there be another quarter of negative growth or really just in aberration. You can also watch the value of the U.S. dollar. If the value drops while other currencies maintain their value or rise, it could sometimes mean an impending recession. Obviously, when you see a drop in the dollar value, it is always in relation to other currencies, but be aware of why the dollar is dropping and if it has to do with the other currency rising or the dollar actually moving down. What we've seen lately is the dollar moving down and that is obviously a precursor to the recession we are witnessing right now. Lastly, you can learn about the money supply and watch for a decrease in that statistical measure. That is also a real good forward forecasting method to see if a recession is going to be around the corner. Now the really important part, how to recession proof your life. It's all about planning ahead. Start paying off that bad debt. By bad, I mean those high interest credit cards and late fees. Combine all of your debt into a much better scenario for yourselves. Find the lowest interest rate possible and you'll have more success in balancing those books further down the line. Start a side business that can help keep you afloat should the economy take a turn for the worse and you're laid off or have maybe your hours cut. Obviously, it's all about planning ahead. Make sure to continually invest in your 401(k) plan as much as you can. Think about it. Stocks are low and you get more of your money right now. Take that extra money you have and put it somewhere you know what's going to grow no matter what happens to the economy. Make sure to refinance your mortgage and get a lower interest rate. This will help you save big time during a recession. Which brings me to the upside of a recession. If you're set for it, if you're up to it, a recession is a time where you can make a lot of money. Interest rates always drop during a recession to entice people to borrow more money and make purchases which will effectively stimulate the economy. So think about it. If you have some money stocked away, maybe it's a good time to start thinking about investing in some of the really beaten down real estate, maybe the companies that have really been thrown to the side, maybe start looking at buying some stocks that have really been beaten up. Be smart. Invest smart. Now is the time to invest in many of the things that were really high priced before. There are plenty of stocks and real estate investments and bonds. And there's a whole host of companies that need money and you can be the place to supply it. And you're going to probably come out smelling like a rose sometime in the future once the recession passes. Buying homes from people right before they have to, well, they have to foreclose, will not only help them out and save their credit, but it'll give you an unbelievable bargain. Sure, it may need some paint and carpet, but that's nothing considering you'll be able to sell it for a cool hundred grand more when the market shifts in a year or two. It's investments like these that will help you increase your personal wealth dramatically. Cha-ching, and that's all for now. Courtesy of Andrew Horowitz, your guest host for Money Girls quick and dirty tips for our richer life. With all the speculation about recessions in the news lately, a lot of listeners have been asking about what is a recession and how does it affect them. So thanks to Joshua and Duke for their question today. And to thank them, we're going to send them a copy of my book, The Disciplined Investor, Essential Strategies for Success. As always, everyone's situation is different, so be sure to consult a tax or financial advisor before making important financial decisions. 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