redips: Jun 21, 2008

Recently, I was asked how I am preparing for America's economic recession. Surprisingly, I answered, "I'm about to start spending like crazy!" The person who asked thought I was crazy until I explained in detail my wealth strategy for 2008, in which I plan to buy assets that have significantly decreased in value (e.g. houses, cars) and extend collateral loans to people and businesses in financial distress. And I don't plan to use my own money to finance my investments, instead I plan to use the Bank's money, which gets cheaper as our economy worsens.

I hate to sound financially selfish, but money and economics is a harsh reality and unfortunately, every time there is financial disaster, there is financial opportunity. In every recession, wealth is transferred from one person to another. One person's loss is another's gain. You should start financially preparing yourself to become a recession "victor" and not "victim."

What is a Recession?

Economically speaking, it's when the economy contracts for at least two consecutive quarters. In English, this means there is a major slowdown in economic activity, in which businesses are not producing as many Sean John jeans, and Cadillac Escalade trucks because American consumers, who account for about 70 percent of all economic activity, are not spending as much money as they were six months earlier.

Why are consumers not spending as much? Because many of them have lost their jobs. The unemployment rate has increased to 5 percent compared to 4.4 percent since March 2007. Over a half million people who had jobs this time last year, unfortunately, are currently unemployed. Some of them had jobs related to the sub-prime mortgage industry. Reuters News reported earlier this year that 86,071 people who worked for mortgage lenders lost their jobs in 2007.

As people continue to cut back on their spending, businesses also slow production of their products and services and begin to layoff workers to cut costs while trying to maintain profits. Since the economic future looks grim, the stock prices of major corporations fall because investors are no longer confident that businesses will be able to increase profits by selling more products. As investors lose confidence, they begin selling their stocks in order to avoid potential losses. Many investors immediately began selling their stocks late last year to avoid losses related to sub-prime mortgages and their actions immediately lowered the value of the stock market.

What can you do to financially protect yourself?

Become a Part-Time Entrepreneur

I recommend that people start thinking of ways to make more money, because once the recession is over and everything is all good again, you will still have that source of income you created and will possibly be in better financial shape. More importantly, you will begin learning how to become "recession proof" -- create multiple incomes! It's time to discover your passion or hobby and creatively think of ways to get paid for doing something you enjoy!

If you don't have very much money to invest, borrow money and find an inexpensive product to sell on the weekends to supplement your "9 to 5" income. For example, you can negotiate to buy the entire stock of items at a local garage sale for a discount, resell them at a markup on Ebay or at a local flea market, and then repeat the process. You would be amazed at the financial results.

As the economy worsens, the Federal Reserve will lower short-term interest rates (e.g. credit cards, auto loans) to entice people to borrow and spend in order to get the economy rolling again. With interest rates continuing to decrease, now is a great time to borrow money to start a business.

While I was in college, I financed my "weekend hustle" (selling clothes) with credit cards. I simply purchased my inventory and before the interest hit I would pay it off and reinvest the profits each time until I made enough money and didn't need to rely on the credit card as much. Many credit card companies are now offering zero percent interest -- that's free money to invest, but just be careful of the fine print and when it expires.

Save, Save and Save!

I understand not everyone has the risk tolerance or personality to become an entrepreneur. So what can you do if you're not a small business owner, but rather in an employee role living a "9 to 5" lifestyle? If you can't be a business at least learn to think like one -- cut costs!

You should look at all your expenses and determine where can you reduce costs. Also, try to barter with your service providers: barber, hairdresser, dry cleaner, and if possible, landlord. After graduating from college, I bartered everything. I would first determine exactly what that person liked or wanted, and would then go find it cheaper than what they were paying and agree to trade for their services. I bartered food, rent, dry cleaning, haircuts and more, saving myself hundreds of dollars a month.

Refinance DebtAnother way to take advantage of lower interest rates this year is to refinance your debt. If you have a home or auto loan or credit card debt, you should think of refinancing those loans to a lower fixed rate. When you refinance a loan, the bank or financial institution you decide to go with will pay off your existing loan completely and enter you into a new loan agreement, which will carry a lower interest rate than the original loan.

For example, if you have an auto loan for $25,000 at 8.5 percent interest, your new refinancing bank will pay off your old loan by sending a check to your old bank, and will issue you a new loan for $25,000 at 6 percent interest, which will probably lower your monthly payments and the total price of the car.

You should call your credit card companies and negotiate to have your interest rate reduced. More than likely they will lower your rate if you have been paying more than your minimum balance and you have not been delinquent in monthly payments. Also, in the future, you should call your credit card companies every six months to request a lower rate and a limit increase to help save you money and build your credit.

Start InvestingWhen is the perfect time to start investing in the stock market either directly or through a 401(k) or Roth IRA? Yesterday! The key is to start investing sooner rather than later because time is on your side. I know, the news says the stock market is doing horrible and everybody is losing money. However, the financial truth is that when you invest in the stock market, you are doing so to create long-term wealth.

My uncle called me a few months ago and yelled, "the market is down and I am losing thousands. What do you think I should do?" I simply told him to purchase even more shares. Why? Because you are investing in the American economy for the long-term, typically ten to thirty years, and by that time you should be financially fine.

What my uncle also forgot was that he made thousands up to this year and now the market is just filtering out all the bad investments from the sub-prime mortgage crisis and will eventually be back on track making him even more money. If he were to stop investing now, he would be missing out on the future gains from a currently undervalued stock market. Either way you look at it, ten to twenty years from now the stock market will be worth significantly more than it was in 2008.

You must understand that the stock market and the American economy will go through financial ups and downs, but as the largest economy in the world, we will continue to have more financial ups than downs and you have to be active in this game of capitalism in order to profit from the economic progress that will continue to take place.

So remember, people with a wealthy mindset don't waste their time and energy complaining about gas prices, instead they would focus their energy on investing in oil stocks so that when gas prices increase they still profit. They are economically prepared because they have forced themselves to think of various ways to generate more than one source of income. Finally, people with a wealthy mindset don't fear recessions because they are financially educated and are able to recognize financial opportunity when others can only see financial disaster.

Create Wealth, Enjoy Life!

James "Bird" Guess

President & Founder

BlacBird Investments LLC

Schoolofmoneyandwealth.blogspot.com

James "Bird" Guess graduated college with dreams of climbing the corporate ladder and becoming a prominent financial executive. But after only working a year in "Corporate America", James grew bitter of the politics and bureaucracy associated and decided to venture out on his own to become a full-time entrepreneur.

With a repossession and other unpaid debts on his credit, James had a negative net worth. Starting with only $1,000 saved from college, he single-handedly built a quarter million dollar apparel business from the trunk of his car. Shortly thereafter, his business model would transition from retailer to wholesaler of apparel, which generated $750,000 dollars in revenue.

James could now take one step closer toward financial freedom. As an entrepreneur, he has bought and sold over $1.5 million of apparel. He now uses his financial acumen to help individuals, entrepreneurs, businesses and investors create wealth in their lives! James is now the President & Founder of BlacBird Investments LLC. http://www.BlacBirds.com & http://www.theblackeconomy.com, Create Wealth! & Enjoy Life!

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About Me

Saturday, June 21, 2008

How To Prepare For An Economic Recession?