How to prepare for the next recession…

What's up, you guys? It's Graham here.

So, it's hard to ignore that recently there's been a lot of talk about how we are now overdue for a recession. We have been in one of the longest-running bull markets in history. Stocks are at all-time highs, the Fed is now raising interest rates, and aliens have recently been spotted hovering over Myrtle Beach. So it makes sense that people are feeling a little bit more uncertain about their financial stability going forward in the next few years.

What many studies show is that we cannot accurately and consistently predict when the market will enter a recession; one thing is 100% inevitable, and that is that I will ask you guys to smash that like button if you haven't already. Let's get into the video.

Okay, but for real, one thing is absolutely 100% inevitable, and that is at some point we will enter another recession. Whether it's next week, next month, next year, five years from now, or ten years from now, it's inevitable. At some point, it will be happening.

So this video is really meant to share with you guys how you can prepare now so that when there is another economic downturn, it doesn't wipe out everything you've worked so hard for.

So, number one, the first thing that you should be doing is paying down any high-interest debt. Now, let's be real; this is probably something you should be doing regardless of the market conditions. If the market is great, well chances are you have more money to pay down that high-interest debt. And if the market is bad, then you should definitely pay down that high-interest debt.

Now, I'm mainly talking about here credit card debt, items you financed at some stupid, ridiculous interest rate, maybe a personal loan you took out to play the Mega Millions lottery, or maybe it's high-interest student loan debt. For me personally, I would pay off anything above a 6% interest rate.

Now, once you reach rates above 6%, it starts getting on par with what you would make if you just invested the money in the market. So at that point, it usually becomes a lot safer and a lot less risky just to pay down the high-interest debt than it is to keep the debt and save the money and invest it instead.

And especially in a recession, the last thing you need is to have high-interest debt that's really bogging you down.

Now, the second thing you should be doing is paying down any variable rate debt. For instance, let's say you took out a 0% interest credit card for 12 months before it then resets and starts charging you 20% interest on that card, and now you're 10 months into it. That's a good idea to pay off.

Or maybe you just have a home equity line of credit where right now it's really cheap to borrow because rates are really low, but as rates go up, that is going to cost you dramatically more.

Or maybe you ended up buying a home on an adjustable-rate mortgage where after five to seven years, that rate resets to whatever current market rates are, and that could end up costing you a lot of money. So you may want to look into locking in the rate now at a lower rate for the next fifteen to thirty years so you know what your payment is going to be long term.

Now, anytime you have variable interest rate debt, you're really just at the mercy of the Fed to keep rates low. And let's be real, over the last five to six years, interest rates have been so favorable; they've been in negative interest rate territories.

So now, as we're entering a new era where interest rates are rising, a lot of these things that you're financed are now going to end up costing you more in the future. So either make an effort now to start paying down these debts or lock them in long term so you know exactly what your costs are going to be month after month.

Now quick side tangent here, but especially in real estate, having a fixed cost is such a benefit. It is stable; it's predictable. You could budget accordingly knowing exactly what your payment is going to be month after month for the lifetime of that loan.

For instance, when it comes to me, all of the real estate mortgages that I have are all financed on 30-year fixed-rate loans, which means that I know every single month exactly what my payment is going to be; it's never going to change until the loan is paid off. That gives me a really good understanding of what I need to do to make sure those payments are covered every single month and what my worst possible scenario would be in the event the market turns down.

And because of that, I can plan accordingly.

Now, number three, the third thing that you should be doing is keeping between four and twelve months of your expenses saved in cash. And this one, you guys, is huge! Keep an emergency fund that's sitting on the sidelines in cash, preferably in a high-interest savings account that you do not touch.

This is really meant to be your "I's up" fund. For instance, if you lose your job, it doesn't matter because you have some savings to fall back on until you find another one. Another, if all of your properties end up going vacant at the exact same time, it doesn't matter because you have money saved up to pay them off until you can go and find another tenant.

Having an emergency fund like this is not about having money that you're trying to go and invest; it's not money that you're trying to maximize your return on. It's simply an iced up fund, plain and simple. This is really just meant to be a safety net that you can fall back on if and whenever you end up needing it.

Now, for instance, when it comes to me, assuming that all six of my places go vacant at the exact same time, and I'm stuck paying three mortgages, I have over two years of expenses saved up in cash to fall back on. Let's even assume that all of my rents overnight dropped by 50%, which realistically is never going to happen because some of these places I haven't raised rent since 2012, but let's just assume it does happen.

I have over five years of expenses saved up so that I can pay these down without having to worry about it. Or in the event that I don't earn a single dollar selling real estate as a real estate agent or earn a single dollar from YouTube anymore, I have a lifetime of expenses saved up, just assuming my rents stay relatively stable.

Now, when you save up enough of this iced up fund, it really gives you the peace of mind not to panic whenever prices go down. It also gives you the ability to think logically and rationally at the point when markets do go down and it causes your heart just to sink a little bit. And you don't have quite that reaction because it doesn't put you in a position where you need to sell anything.

Number four, the fourth thing that you should be doing is keeping spending to a minimum. Now, this just means don't get used to a lifestyle that's reliant on the economy continuing to go up. And whenever it doesn't, it all falls apart and it can't sustain itself.

And I hate to say this, but I see way too many people put themselves in this predicament where they're just a few missed checks away from everything crumbling apart. And their entire spending and lifestyle is really like a house of cards; where if you take one away, the entire thing comes crashing down.

Now, like I mentioned earlier, whether we're in a good economy or a bad economy, always keep spending to a minimum. If we're in a good economy, that's great! If you keep spending to a minimum, that means you have more money to save and invest. And when we're in a bad economy, that's a good thing because you've had enough money to save and invest, and chances are it's not going to affect your lifestyle whatsoever.

Now for me, my personal expenses outside of my mortgages really only comes to about $1,500 every single month. And in the event I need to cut that back, I can get rid of the Mercedes, save the $500 per month I'm paying on a lease, and just go and buy a used Prius.

I also don't need to go to Equinox at $200 a month, and instead, I can go to 24-hour fitness for $50 a month. So right there, if I really need to, I can cut my spending back from $1,500 a month all the way down to $950 a month, and anything else I do or spend above that amount is purely just discretionary, and I could cut that back or stop whenever I want.

So anyway, I think it's pretty common sense that the less you spend, the less likely you are to be impacted by a bad economy, job loss, or a reduction in income. So always keep your spending to a minimum and invest and save everything else you can.

Now, number five, the fifth thing that you should be doing is don't overextend yourself with debt or any other financial obligations. And also, don't take on more debt than you can comfortably cover with your own income.

For instance, if you're only making $5,000 per month and you have a $10,000 per month mortgage that's entirely reliant on your tenants paying this down—what happens in a prolonged downturn or a prolonged vacancy where you just don't have the savings to cover that mortgage? And in the event that happens, you're going to be screwed, especially if you don't have the savings or I-duct fund to cover that until the market recovers.

Don't take out large car payments, don't take out a long-term lease on an expensive penthouse apartment, don't go and buy Gucci and designer clothing every single weekend unless you have the income and the savings to pay it off in full whenever you need to.

If you need to— the people who really ended up getting crushed in 2008 and 2009 simply took out too much debt on variable interest rate loans that require the market to continue going up to make those payments.

Don't do that. Only buy things that you could afford to own and buy outright. And only finance real estate on the fundamentals of a long-term outlook.

Now, number six, the sixth thing that you should be doing is don't only rely on one source of income. This is simply just way too risky in the event that income dries up or you lose your job, or something happens and all of a sudden you have no more money coming in.

And you're left frantically trying to take whatever you can just to pay the bills, especially in 2009. Just keep in mind that the unemployment rate at that time was 10%.

So ideally, you want to have two or three sources of income coming in so that way, if something happens to one, it's not as big of a deal because you have another few sources of income that you can rely on.

And when it comes to me, I have five sources of income, and this is how I break it down.

Now, my largest source of income is working as a real estate agent, and this is something that I've done for the last ten years since 2008. Now, over that time, I built up a pretty substantial client base of repeat and referral business, so that even if we enter another 2009, it's inevitable I'm gonna continue to sell houses.

Now, my second largest source of income is now YouTube ad revenue. Now, this is incredibly risky, especially given the whole Adpocalypse thing. And basically, I'm at the whims of the YouTube algorithm to determine how well my videos do. But when it does do well, the income I make here on YouTube from ad revenue is actually pretty substantial.

Now, my third largest income source at this point is from program sales of the Real Estate Agents Academy. Link in the description, use coupon code ThankYou52, enjoy $50 off while supplies last for a limited time only!

No, it's going to be very interesting to see how these program sales do in a recession because when the market is doing well, people have more money to spend on education. But the other thing is that when the market goes down and people need to earn more money, sometimes they also reinvest back into education.

So this could actually end up doing better in a recession, or it could possibly end up doing worse; so we'll see what ends up happening here.

Now, my fourth largest income source is the rental income I received from six properties, and that works out to be ten units total. Now this one for me has been insanely stable since 2012. I rarely raised my rents; most of the properties are rented under market value, so I can't really see this dropping much. If anything, the rent is probably going to continue going up over time, so this is something that I think is pretty safe to rely on.

You assuming a 20% drop in rental income, it doesn't really matter; it'll be fine.

Now, my fifth income source is actually a few that I'm just gonna group together, so I'm not like, you know—my eighth income sources.

So the first one of the fifth source of income is by paying down the mortgages every single month. Part of my payment goes towards paying down the principal of the loan, and on three mortgages, this adds up. I think it's somewhere around like three grand a month.

I got to calculate that; I think it works out to be about three grand a month paying down the mortgages. Now, this is really just like a forced savings account where money goes back into the property in the form of equity.

Now, if we see the market go down, this could really just balance each other out. But I think long-term, I'm not really too concerned about it.

Now, the second source of income on number five is from a Vanguard index fund. Every single month, I get dividends on that; I just choose to reinvest it. So I don't spend any of that money; it's all sitting in a Roth IRA.

So anyway, I mean, that's income, but I'm not really gonna ever be touching that.

Finally, the next income source from number five is from paid consulting calls. Now, this isn't something I do very often; it's really just on a case-by-case basis. But it does add up over the course of like a month, so it's not really something that I rely on; it's extra income. But you know, figured I'd throw that in there.

So with that said, if a few of these income sources fail, it's safe to say that nothing will really be devastating. I'm sure it'll suck, but it's not really gonna make that big of a difference.

This is really the way you should be treating your income as well, so that if something happens to one of your sources, or maybe the income reduces by 50%, or something happens, it's not really as big of a deal, and you'll be fine.

Number seven, the seventh thing that you should be doing is just keep saving. Do not stop saving just because you think the money will continue to come rolling in year after year. Because I think it's pretty safe to say at some point, something will happen to your income; it will get reduced at some point.

And you don't want to be in a position where, again, this is why it's so important to save a good portion of your income while you can save it while the going is good. So that way, whenever something happens, you're gonna be a-okay.

Now, number eight, the eighth thing you should do, last but not least, is don't panic and just stay on course. Do not panic sell; do not try to time the market. Do not hold off from investing because you think stocks are at all-time highs and they can't possibly go any higher.

Do not wait to try to buy at the very bottom. It's proven statistically that the best thing that most people can do is simply invest consistently and invest for the long-term, stay on course.

And usually, the best way to ride out a recession is simply just by doing nothing different unless you're just not investing or doing anything at all, in which case it's probably best that you save and invest consistently.

The people who really ended up losing in 2008 and 2009 panic sold and took a loss or sold at the bottom and then waited years to go and buy back in when prices were higher.

The 2008 recession was the worst that we have seen since the 1929 Great Depression, and for the people who simply just stayed the course, didn't panic sell, and just held on to what they had and waited, they eventually recovered just fine.

Now, I'm not saying that that wasn't a very, very rough time for many people who ended up going through a lot of hardships. But it is proven that the best investment strategy out there is simply just to buy, wait, and hold long term.

Finally, number nine, the most important from all of this is to make sure to smash that like button if you haven't already.

So with that said, you guys, thank you so much for watching. I really appreciate it. If you guys made it to the very end and you haven't already subscribed, make sure to go ahead and smash that subscribe button, smash that notification bell so YouTube notifies you anytime I post a video.

Also, feel free to add me on Snapchat and Instagram; I post there pretty much daily. So if you want to be a part of it there, make sure to add me there.

Also, I have a private Facebook group in the description for anyone who's interested—real estate investing, real estate agent mentoring, coaching, real estate thing, anything real estate. Make sure to add yourself to that group.

I also have another program in the description called the Real Estate Agents Academy that teaches real estate agents how to grow their business, how to start in the business, everything you need to know about becoming a real estate agent and building up that whole little mini real estate agent empire.

So if you want to be a part of that, the link to that is also in the description. Thank you again for watching, and until next time!