When the Financial Tide Goes Out

What is Causing This Market Turmoil?

The main culprit, the Coronavirus – even though other market factors may be exacerbating this issue.

With the virus spreading across the world, there is great uncertainty of how this will impact company profits and the economy as a whole.

There are still many factors that will determine how serious this will be.

The stock market is very much driven by emotion and this week has proven this to be true.

It is not uncommon for the market to react before the facts are clear.

Only time will tell if this market selloff is justified or not.

Many of the major blue-chip companies are down 15%+.

Something we haven’t seen since the financial crisis.

What I want to focus on in this email is preparation opposed to where we are headed.

When the Tide Goes Out…

One of my favorite quotes says, “only when the tide goes out do you discover who’s been swimming naked.”

In essence, when the economy is strong, it is hard to gauge who is prepared for financial uncertainty.

Why?

Incomes are good.

Credit is readily available.

Unemployment is low.

But all of this changes when we see a recession – or even just stock market turmoil like we saw this week.

When incomes go down, credit dries up, and people lose jobs (the tide going out) it becomes quickly apparent who is prepared.

And unfortunately, many of us will realize we are standing there naked as this happens.

What Does it Mean to Be Swimming Naked?

The main culprit – over spending.

When we spend more than we make, we have to find a way to keep going.

Most households turn to debt to finance their lifestyles.

Credit cards, home equity loans, personal loans, excessive auto loan debt, etc.

These are just a few of the areas we use finance to help fund these lifestyles.

When credit goes away, households end up trapped – or swimming naked.

They don’t have access to the needed money to keep going.

Recessions usually impact income as well – which creates a double whammy.

Not only does credit dry up, but income goes down.

This makes it almost impossible to keep going without some type of default.


What Should We be Doing?

So, has the tide gone out?

No, not necessarily.

But if we see a prolonged sell off in the market, or continued issues around Coronavirus, we could see a full-blown recession.

Now is the time to get ready whether a recession is here or not.

Get savings in place – at least 3 months is a good starting point.

Pay off debt – starting with risky high-rate debt like credit cards.

Improve Cash Flow – increasing income and getting rid of monthly payments.

Add to your food storage – even if we don’t see a full-blown pandemic, this is good to do in case there is ever a loss of income.
 
I believe the economy is still strong.

I don’t think we are going to see a strong recession this year, but it is possible – it may already be here.

I do feel like now is the time to prepare.

When we see things like we have seen this week, it reminds us how important it is to be prepared.

It is much easier to prepare when income is good.

Don’t let yourself get caught swimming naked.

Many of the people we see around us that seem to have all of the “nice things,” are indeed unprepared.

One of the keys to personal finance is to prevent yourself from falling into the trap of keeping up.

Focus on where you want to be and put your head down and get to work.

Even if a recession is 5 years down the road, now is the best time to get ready.
 
Thanks for reading,
Darron Rowley

Founder of 1911 Apparel