Surviving a Recession

mtn said:

frenchyd said:

In reply to pheller :

Man plans and the Gods laugh! 

Heading into the last recession the only debt I had was my mortgage.  Which according to the bank 1/12 of it’s market value.  

Cars were all paid for, plus I had three race cars. a MGTD 

the Black Jack special

a JaguarXKE V12 Race car nearly finished.  ( (wiring and brake lines left to do) 

plus every tool and piece of equipment  needed to build my house. 

I had a cash stash equal to 2 months bills 

A maxed out 401k  worth over $250,000  invested in the Diamonds( DOW) 

a IRA  mainly in REITS and equities worth $125,000 

A company retirement plan 

 We could pay bills with just my wife’s income after she bought whatever she wanted for the kids and  herself  but we were both frugal and careful.  

My tax advisor had retired after a career with the IRS and he kept my personal tax liability down to an average of 2% to the Fed and 3%  to the state. 

That meant instead of paying off the mortgage I had started a remodel project.  Basically I was paying for the remodel on the tax money I saved by not paying off the mortgage.  

I was the contractor, designer, builder, laborer, and clean up guy.   I’d work a full day and come home and work on the house until the noise curfew shut me down and then I’d clean up and resharpen tools etc for the next day.  14 hour weekends doing the same. 

I bought all the materials at bottom basement prices. For example the Black walnut Timbers that made up so much of the house cost me only 17 cents a board foot.  Today black walnut is over 10 dollars  a bd ft I paid nothing for all the copper I used because I bought a pallet of 230 sheets 4x8 at a scrap yard. I saved all the little scraps and sold them when copper prices were up and that more than paid for the copper. 

Then the recession hit.  I barely survived still owning my house. 

 

Did you lose your job? Did your wife lose her job? Did you sell out at the bottom and never get back in? 

Something doesn't add up here. Otherwise you wouldn't have "barely survived still owning your house". You'd have said "oh E36 M3, what happened to my 401K? That sucks, guess I'm still working 10 years longer than I planned" only to find out 7 years later that the market rebounded to where it should have been anyways.

Yes while they laid off 7 salesman in 2007 they kept me for slightly more than a year but by the fall of 2008 I too was one of 22 million paid off.  

The next year my wife was diagnosed with terminal cancer.  If you withdraw a 401 k or IRA early you pay a serious penalty  on top of being forced to sell in a down market. Economically  I’m ahead by holding on to the house and giving up  the retirement accounts. But I didn’t build this place to sell. 

My point is at one point I had everything everyone is talking about.  Then I didn’t. 

Life goes on. I wish it hadn’t happened but I’m so much better off than some of the people I worked with. My story is a drop in the bucket compared to theirs. 

frenchyd said:

mtn said:

frenchyd said:

In reply to pheller :

Man plans and the Gods laugh! 

Heading into the last recession the only debt I had was my mortgage.  Which according to the bank 1/12 of it’s market value.  

Cars were all paid for, plus I had three race cars. a MGTD 

the Black Jack special

a JaguarXKE V12 Race car nearly finished.  ( (wiring and brake lines left to do) 

plus every tool and piece of equipment  needed to build my house. 

I had a cash stash equal to 2 months bills 

A maxed out 401k  worth over $250,000  invested in the Diamonds( DOW) 

a IRA  mainly in REITS and equities worth $125,000 

A company retirement plan 

 We could pay bills with just my wife’s income after she bought whatever she wanted for the kids and  herself  but we were both frugal and careful.  

My tax advisor had retired after a career with the IRS and he kept my personal tax liability down to an average of 2% to the Fed and 3%  to the state. 

That meant instead of paying off the mortgage I had started a remodel project.  Basically I was paying for the remodel on the tax money I saved by not paying off the mortgage.  

I was the contractor, designer, builder, laborer, and clean up guy.   I’d work a full day and come home and work on the house until the noise curfew shut me down and then I’d clean up and resharpen tools etc for the next day.  14 hour weekends doing the same. 

I bought all the materials at bottom basement prices. For example the Black walnut Timbers that made up so much of the house cost me only 17 cents a board foot.  Today black walnut is over 10 dollars  a bd ft I paid nothing for all the copper I used because I bought a pallet of 230 sheets 4x8 at a scrap yard. I saved all the little scraps and sold them when copper prices were up and that more than paid for the copper. 

Then the recession hit.  I barely survived still owning my house. 

 

Did you lose your job? Did your wife lose her job? Did you sell out at the bottom and never get back in? 

Something doesn't add up here. Otherwise you wouldn't have "barely survived still owning your house". You'd have said "oh E36 M3, what happened to my 401K? That sucks, guess I'm still working 10 years longer than I planned" only to find out 7 years later that the market rebounded to where it should have been anyways.

Yes while they laid off 7 salesman in 2007 they kept me for slightly more than a year but by the fall of 2008 I too was one of 22 million paid off.  

The next year my wife was diagnosed with terminal cancer.  If you withdraw a 401 k or IRA early you pay a serious penalty  on top of being forced to sell in a down market. Economically  I’m ahead by holding on to the house and giving up  the retirement accounts. But I didn’t build this place to sell. 

My point is at one point I had everything everyone is talking about.  Then I didn’t. 

Life goes on. I wish it hadn’t happened but I’m so much better off than some of the people I worked with. My story is a drop in the bucket compared to theirs. 

Your story is the worst case scenario though. Terminal cancer. Not really a drop in the bucket. 

EDIT: And the reason you barely survived was you jumped out of the market. Regardless of the reason(s) that you did it, that is the worst thing you can do from a portfolio perspective. Don't do that and you[r portfolio] survives the recession.

 My parents are boomers. They're retired comfortably. Why? Because they stayed in the market in their index funds and consistently saved the 15% to 50% annually, depending on the year (average 22% of income saved to 401k/IRA/403b/other savings).

I think a better question is "what did you do last time that worked?" and learn from there. 

I've been though two as an adult. The first was the dot com bust. That one was much more industry specific, we had no money in the market because we were just starting out, and we just went to work. It was a significant hit to those in tech, people lost fortunes. People lost their retirement money and a lot of people had to postpone retirement. We learned that putting all of your eggs in one basket is a terrible idea so when my wife received stock options as part of her job we diversified away from those. Tying you savings up with the same company that pays your income is a bad idea. 

The next one was the great recession. We had paid of our mortgage, but we were a single income. We moved about half our retirement funds into bonds because the world looked sketchy as all get out. Market timing is a terrible idea. Did it anyway. Bought back into the SP500 within 50 points of the very bottom. That made me look like a damn genius. Also bought a chunk of Citibank stock because the upside potential once they stabilized was huge. I thought. Less of a genius. I have enough humility to know that there is significant luck in the smartest things I do. 

Coming out we did great. We had enough invested that market growth has made medium sized numbers into big numbers. My wife took a payout from a company being sold and used that cushion to spend 9 months trying to start a company with an investment group. That didn't work out but stepping up in her industry got her in front of people that wanted her in a similar position in their company. Before she went to work with no salary we de-risked our savings by moving a significant chunk into bonds. Our biggest threat was a recession while she wasn't working. As we've gotten income back, we've stayed bond heavy because things look weird. More market timing. Never a good idea. I'm doing it anyway. 

My recommendation to everyone is to always live below your means no matter what the economic conditions are. Be prepared to live without money for a while. Make sure you can move. The economy recovers unevenly and jobs might never come back where you are. Being stressed about money is bad for a marriage. 

mazdeuce - Seth said:

I think a better question is "what did you do last time that worked?" and learn from there. 

I've been though two as an adult. The first was the dot com bust. That one was much more industry specific, we had no money in the market because we were just starting out, and we just went to work. It was a significant hit to those in tech, people lost fortunes. People lost their retirement money and a lot of people had to postpone retirement. We learned that putting all of your eggs in one basket is a terrible idea so when my wife received stock options as part of her job we diversified away from those. Tying you savings up with the same company that pays your income is a bad idea. 

The next one was the great recession. We had paid of our mortgage, but we were a single income. We moved about half our retirement funds into bonds because the world looked sketchy as all get out. Market timing is a terrible idea. Did it anyway. Bought back into the SP500 within 50 points of the very bottom. That made me look like a damn genius. Also bought a chunk of Citibank stock because the upside potential once they stabilized was huge. I thought. Less of a genius. I have enough humility to know that there is significant luck in the smartest things I do. 

Coming out we did great. We had enough invested that market growth has made medium sized numbers into big numbers. My wife took a payout from a company being sold and used that cushion to spend 9 months trying to start a company with an investment group. That didn't work out but stepping up in her industry got her in front of people that wanted her in a similar position in their company. Before she went to work with no salary we de-risked our savings by moving a significant chunk into bonds. Our biggest threat was a recession while she wasn't working. As we've gotten income back, we've stayed bond heavy because things look weird. More market timing. Never a good idea. I'm doing it anyway. 

My recommendation to everyone is to always live below your means no matter what the economic conditions are. Be prepared to live without money for a while. Make sure you can move. The economy recovers unevenly and jobs might never come back where you are. Being stressed about money is bad for a marriage. 

Live below your means? On the surface that sounds like solid advice. It’s not what Henry Ford did, or Bill Gates, or anybody who was really successful 

Taking chances is the only way to be really successful.  While hunkering down  seems a safe bet, life happens. That car accident or slip in the bathtub that disables you can’t be planned for nor can serious illness.   

Around 50% of marriages end in divorce some as retirement approaches which is extremely tough on finances.  

Careers end and the need for updating training never seems to stop. Management changes and often the people in important roles with them.

When I went to high school  you could plan on working for a major company all of your life. Following graduation from college I was told to expect 3-4 career changes in my working life.  At my daughter’s college graduation  they said to expect as many as 20 career changes over their working life. 

In reply to frenchyd :

I agree with all of that. What has worked for me isn't a blueprint for anyone else which is why I sort of suggested that we all throw out what we did and let people draw conclusions off that. 

As far as living below means and taking risk, in my story above we absolutely have a period of time where I ignore that advise and my wife quits a perfectly good job in a quest to start something herself. Our expenses during that time actually increased as we had to pay out of pocket for healthcare and we were on the hook for a portion of the business expenses. Pricing that out, our increased expenses and 9 months with no income, it will take us at least five years at her new higher salary to get back to where we would have been had she not tried. 

Risk with significant potential upside is ok (to me) but that's quite a lot different than living on razor thin margins when you might lose your job. I'm also aware that a LOT of people don't have the luxury of living well below their means during good times. Good times are when you're scraping by and not falling behind. That's a different discussion though and discussions about preparing don't have a lot of relevance when you're just trying to make to to the next pay day.

mazdeuce - Seth said:

In reply to frenchyd :

I agree with all of that. What has worked for me isn't a blueprint for anyone else which is why I sort of suggested that we all throw out what we did and let people draw conclusions off that. 

As far as living below means and taking risk, in my story above we absolutely have a period of time where I ignore that advise and my wife quits a perfectly good job in a quest to start something herself. Our expenses during that time actually increased as we had to pay out of pocket for healthcare and we were on the hook for a portion of the business expenses. Pricing that out, our increased expenses and 9 months with no income, it will take us at least five years at her new higher salary to get back to where we would have been had she not tried. 

Risk with significant potential upside is ok (to me) but that's quite a lot different than living on razor thin margins when you might lose your job. I'm also aware that a LOT of people don't have the luxury of living well below their means during good times. Good times are when you're scraping by and not falling behind. That's a different discussion though and discussions about preparing don't have a lot of relevance when you're just trying to make

to to the next pay day.

That’s extremely well written. Especially the part about Good Times!  

You are absolutely exactly on the money about those who barely scrape by. I did that for a while where making the next payment involved finding every last coin you’d set aside hidden or lost.  

It’s no use talking about the future except as a distraction.  Your head is down and you’re focused on the here and now. Those who have to live their life like that have my respect. It’s almost like life should owe them something. 

frenchyd said:

Live below your means? On the surface that sounds like solid advice. It’s not what Henry Ford did, or Bill Gates, or anybody who was really successful 

You're confusing two things. One is to live below your means as a person, the other one is to take risks in your business. Henry Ford was actually known to be pretty frugal (and Bill Gates started out with a sizable trust fund, but that's another story).

Not spending every cent that comes in personally and in your business allows you to take these risks. And yes, sometimes you have to add leverage.

Taking chances is the only way to be really successful.  While hunkering down  seems a safe bet, life happens. That car accident or slip in the bathtub that disables you can’t be planned for nor can serious illness.   

The original question wasn't about hunkering down in a safe place, though, was it? There's a big difference between working on adding a bit of future proofing to one's life and never leaving the house for fear of an asteroid hitting you in case you do.

BoxheadTim said:

frenchyd said:

Live below your means? On the surface that sounds like solid advice. It’s not what Henry Ford did, or Bill Gates, or anybody who was really successful 

You're confusing two things. One is to live below your means as a person, the other one is to take risks in your business. Henry Ford was actually known to be pretty frugal (and Bill Gates started out with a sizable trust fund, but that's another story).

Not spending every cent that comes in personally and in your business allows you to take these risks. And yes, sometimes you have to add leverage.

Taking chances is the only way to be really successful.  While hunkering down  seems a safe bet, life happens. That car accident or slip in the bathtub that disables you can’t be planned for nor can serious illness.  There are 60,000 gun deaths a year,  few planned. 

The original question wasn't about hunkering down in a safe place, though, was it? There's a big difference between working on adding a bit of future proofing to one's life and never leaving the house for fear of an asteroid hitting you in case you do.

Life is different when your closer to your beginning then your end.  I followed everyone’s advice.  But life happens as it will to everyone.  Millions of different things happen to plans  

Indulge  my What if’s for a few moments? What is your fall back plan?  I sure didn’t plan on driving a school bus.   That old lady working as a cashier didn’t plan that to end her working days.  My grandparents grew vegetables in their garden selling them to supplement  their social  security.

I know farmers working into their 90’s because they avoided paying for their own retirement. Now they are upside down on their farm with no retirement in sight

You can only do what you can do. After that.... well it is what it is. Does that mean you throw your hands up in the air and say "screw it, I'm never going to win"? To me that comes across as a victim mentality. I refuse to live that way. I will go down fighting. I will not give up. I will find a way to succeed. Those were the things that were instilled in me from a very early age. I watched my folks struggle. I watched things happen to us that was beyond unfair. I also watched my parents get back up, go right back at it. 

Basically, we're too stubborn to give up. So, knowing that, it makes planning for a possible future a little different. We scrimped for 8 years to build up a safety net. We refinanced to lower rates without taking more money on the house to lower the actual payment. Doing that allowed us to add to the mortgage when possible to pay less overall and get that payment gone earlier. Even if we can't pay extra its low enough that we could flip burgers and still make the mortgage. That's our safety net. Don't carry credit card debt. Pay cash for lightly used cars. 

Most importantly, remember to appreciate today. Tomorrow may never come, but that doesn't mean it WON'T. So blowing all your money today in spite of tomorrow is just as bad as saving everything for a retirement that you may never reach.

In reply to frenchyd :

Hang on, Frenchy. 

By your own admission, you followed almost NONE of the advice offered here. 

You took everything you had and dumped it into high risk options accounts, then bailed at the bottom of the crash. 

FWIW Gates pretty much lucked into his Microsoft deal too, so it's probably not the best example.

Suprf1y said:

FWIW Gates pretty much lucked into his Microsoft deal too, so it's probably not the best example.

True. It was close until the author of CP/M messed up and Bill Gates saw the opening.

bobzilla said:

You can only do what you can do. After that.... well it is what it is. Does that mean you throw your hands up in the air and say "screw it, I'm never going to win"? To me that comes across as a victim mentality. I refuse to live that way. I will go down fighting. I will not give up. I will find a way to succeed. Those were the things that were instilled in me from a very early age. I watched my folks struggle. I watched things happen to us that was beyond unfair. I also watched my parents get back up, go right back at it. 

Bringing your parents into it is interesting. It took 4-5 generations for my family to go from dirt farming immigrants (who snuck over the border from Canada) to where I am now. There was no great leap in any generation. None of my ancestors struck in rich. They just worked hard to make things a little easier for their kids than it was for them. We have a very solid lore of "there is a thing I wanted to do, but I didn't have the chance, and I want you to have that chance" in my family. 

I worry that, as a country, we're losing the perspective to try and make things better for people we don't know. 

In reply to mazdeuce - Seth :

I don't think there was any great leap in ours either. My family has been on the same parcel of land thay has been in the family since before Indiana was a state. Its much smaller now than it was originally, but my grandfather was not rich. HE was super smart but lazy. Worked just enough to get by and lived by the renter's mentality. My dad is far from well off, he's retirment age and still working because he has to. I may be the first, last and only in my family line that has a chance to retire at a decent age. That has as much to do with luck as it does anything (and a wife with a solid financial planning background). But I was always taught that you don't give up and lay down and take whatever is handed out. You work. You bust your ass because nothing is going to be given to you. If you don't earn it, you will never have it because we don't come from a rich background. 

bobzilla said:

In reply to mazdeuce - Seth :

I don't think there was any great leap in ours either. My family has been on the same parcel of land thay has been in the family since before Indiana was a state. Its much smaller now than it was originally, but my grandfather was not rich. HE was super smart but lazy. Worked just enough to get by and lived by the renter's mentality. My dad is far from well off, he's retirment age and still working because he has to. I may be the first, last and only in my family line that has a chance to retire at a decent age. That has as much to do with luck as it does anything (and a wife with a solid financial planning background). But I was always taught that you don't give up and lay down and take whatever is handed out. You work. You bust your ass because nothing is going to be given to you. If you don't earn it, you will never have it because we don't come from a rich background. 

I agree completely If you didn’t earn it you will never keep it.  

To me the stock market is little more than gambling. The advantage is always with the broker.  

Ok, thank you all for your patience. After reading through this thread I have removed some comments that are not on topic. As we all know from the House Rules thread, our standards here are to keep the discussion civil and polite. Refrain from making politically charged statements, and be excellent toward each other. If someone is posting something that you've heard a thousand times, ignore it. If you see a post that obviously violates the House Rules, please report it to me or another mod, or post a message in the Report Canoes thread. Any posts in that thread triggers an email to me and I check that pretty often throughout my day. 

I am reopening the thread for now, and my hope is that like so many other hot button topics, the diverse and insightful perspectives of our members can continue to raise the bar for what a forum can be, and what a community should be; a place to better ourselves, expand our awareness and build a better understanding of the events that shape all of our lives. I learn something every time I visit this forum, and I owe it all to you guys and gals. Let's continue to strive to make the world a better place, together.

Cheers,

Ash

One thing my dad instilled in me, and his dad instilled in him (and going back however long) is to do whatever is possible to set your future generations up for success.  It's a lot harder to start from nothing than it is to have a "leg up"- whether that leg is a paid-for higher education, a chunk of change to put down on a house, or a grub stake of some sort to get started in business.  Sure, there's always the chance that some future offspring might blow it all to hell, but if you can also instill that value of family and trust and work ethic and minimize that chance.  

An example: My parents started retirement accounts (IRAs) for our children.  They are currently 4 years old and 16 months, and each of them has several thousand dollars in retirement savings already- even though they don't know it.  That money has over 60 years to grow.  There's no way they could have gotten that snowball rolling themselves.  And if we ever have grandchildren, provided we can, we intend to do the same thing.  

As I've gotten older my view on money has gotten a lot more holistic; i.e, it's the FAMILY's money, not mine.  Don't think 3 years down the road, think 50.  There have been no big steps in our family either- my grandfather had an 8th grade education and was a shoemaker; my dad has a college degree and had a white collar career; I have a master's degree and run a little real estate on the side.  My daughter, my son?  I'd like to see professional titles in front of their names...Doctor...Senator...Your Honor...etc.  :-D

volvoclearinghouse said:

One thing my dad instilled in me, and his dad instilled in him (and going back however long) is to do whatever is possible to set your future generations up for success.  It's a lot harder to start from nothing than it is to have a "leg up"- whether that leg is a paid-for higher education, a chunk of change to put down on a house, or a grub stake of some sort to get started in business.  Sure, there's always the chance that some future offspring might blow it all to hell, but if you can also instill that value of family and trust and work ethic and minimize that chance.  

An example: My parents started retirement accounts (IRAs) for our children.  They are currently 4 years old and 16 months, and each of them has several thousand dollars in retirement savings already- even though they don't know it.  That money has over 60 years to grow.  There's no way they could have gotten that snowball rolling themselves.  And if we ever have grandchildren, provided we can, we intend to do the same thing.  

As I've gotten older my view on money has gotten a lot more holistic; i.e, it's the FAMILY's money, not mine.  Don't think 3 years down the road, think 50.  There have been no big steps in our family either- my grandfather had an 8th grade education and was a shoemaker; my dad has a college degree and had a white collar career; I have a master's degree and run a little real estate on the side.  My daughter, my son?  I'd like to see professional titles in front of their names...Doctor...Senator...Your Honor...etc.  :-D

I've recently adopted a similar view of money not just being mine, but my kid's and future grandkids, etc. Can you give some details on the part that I've bolded? I was under the impression that IRAs could only be funded with income earned by the IRA holder. Maybe I've misunderstood something. I see a legitimate argument that a a 4 year old can earn some income with chores, but a 16 month old probably isn't quite there yet. Are the IRAs in your kids' names, or somebody elses? Certainly not trying to get anybody in trouble, but as a new dad, I'd love to hear some details about how that works and stays "on the up and up".

In reply to STM317 :

Might be a Custodial IRA?  

Some additional info...

In reply to STM317 :

This article discusses it a bit.  Basically the tax laws are such that under a certain amount, a person does not need to file taxes on income.  So, they can earn income, as long as its under that amount, and have contributions to a custodial Roth IRA, and it's all legal and fine as the numbers are (relatively) small.  

My wife and I both have side businesses that lend themselves to the family helping out.  The kids can help with paperwork stuff (they love shredding paper!) or helping mom make jewelry or tend to the chickens and garden (she sells some of her agricultural output).  You can even incorporate or 1099 your kids.  

It may seem like some work for (again, relatively) small change, but run the math on $1000 invested at 6% (average returns in the market) for 60 years.  Pe^(rt) -->

$1000* 2.718281828^(0.06*60) = $36,600.  

Avoid kids and fancy homes, they are the honey pots that bind you to debt.

Buy a small home, pay it off and stay there.

Live below your means with zero debt and don't give a berkeley. 

Besides being recession proof, your ability to career jump goes way up.  I have gotten to do a lot of neat things because I did not have to worry about walking away from a good paying  job that no longer fed MY needs and interest. 

Pete

NOHOME said:

Avoid kids and fancy homes, they are the honey pots that bind you to debt.

Buy a small home, pay it off and stay there.

Live below your means with zero debt and don't give a berkeley. 

Besides being recession proof, your ability to career jump goes way up.  I have gotten to do a lot of neat things because I did not have to worry about walking away from a good paying  job that no longer fed MY needs and interest. 

 

Pete

 

I'll add "marry a sugar momma" to that list. No kids, two incomes, wife that makes more money than I do. Sure fired road to success.

In reply to volvoclearinghouse :

Thanks for clarifying. That's basically the way that I understood it, but I think it's important to be careful. The IRS seems accepting of kids earning income from a job, but less tolerant of what amounts to an allowance for things like household chores. One is ok, and the other is not and there's not a ton of distinction between them. I need to dig a bit more and find out exactly what is considered ok (job) and what isn't (chores/birthday money/tooth fairy cash/etc)

The last section in this article seems to echo my thinking. It might not technically be legit. But it's probably small enough amounts that nobody is willing to really pursue it. Much like profit from selling things in a garage sale, or cheap vehicles on craigslist. If they come looking, you might get some difficult questions about what a 16 month old could be doing to legitimately earn income, but the IRS probably has bigger fish to fry.

It doesn't have to be an ira. Anyone can go open any investment account anytime. Sure you don't get the tax Bennie's, but you also don't get locked in till some age or the other rules that go with it.