How To Prepare For A Recession

The Data, Generally Speaking

Stocks have been on a tear since Mid-2009. That is 9 years of explosive growth and one of the longest contractions we’ve ever had. Real estate has been on a rebound since early 2012 as Bay Area homes show no signs of a slow down. But that seems to be changing as we’ve hit an inflection point. You can talk to a hundred experts and you’ll get a hundred answers. But one thing is for sure, the market has never been higher.

SP500-Over The Years

So the 64 Trillion dollar question is: are we headed higher on the graph or are we headed for a free fall? As of August 2018 more news is coming out about an impending crash. Investors are quickly putting on the brakes.

But regardless of what the market does, what I really want to know is, are you prepared for a crash? How resilient are you to a market meltdown?

Let’s dive in and look at all the housekeeping you have to get in order before the going gets tough:

Pad Up Your Emergency Fund

Let’s get one thing straight, your emergency fund is completely separate from your savings. The emergency fund is there to carry you over in case you lose a job. A comfortable padding should allow you to take care of all your mandatory expenses for 6 months without any type of income. Money is time so the more you have stashed away, the more time you bought yourself.

Create A Budget

So how much are you really wasting on lattes? Be meticulous in putting it together. Typical expenses include: rent, car payment, school payment, groceries, utilities, cell phone, credit cards (better pay this fully each month!), gas, cable, subscriptions, clothing, travel…and you get the idea. If it’s not written down on paper you most likely can’t see it. Trim the fat!

Are You Invested In The Markets

Do you have a financial plan? When I say ‘plan’, I’m really talking about a playbook. The younger you are, the riskier your portfolio. The older you are the more conservative your portfolio. So think fixed income (bonds, T-Bills, CDs) or high yield savings accounts. If you are highly invested in equities (stocks), you may want to think about reshuffling. Many experts say to not time the market, and let the money grow long term.

Clean Up Your Resume and LinkedIn

Polish up your resume and Linkedin and start reaching out to your contacts. Get a conversation going with your friends, colleagues and especially LinkedIn contacts. You don’t want to reach out to them out of the blue when the situation is dire. Build connections now.

Attend Events and Network

Start attending events, workshops, conferences and just get out there. Most of the good events are paid, and the mediocre ones are free. Definitely pay for the good ones, they are worth it and attract a higher caliber crowd usually. You can volunteer at events and attend them for free.  Meet people, and add them to your network/Linkedin. Beef up your network so that you can tap into it later. Be ready to offer the help too.

The 5 Commandments Of Being Rich

We are living in a world of insane opulence. More millionaires and billionaires exist today than any other time in history. But the overwhelming majority of us, as in 98% of us, are just middle classers putting food on the table and keeping the lights on.

But…if you pause just for a second and straighten out your fundamentals, you can significantly increase the quality of life and see incredible results.

Below I have listed the 5 Holy Commandments Of Being Rich. Follow them, and avoid the pitfalls that most folk make:

  1. Pay Off All Debt

Debt is toxic. Do you really really need to make that purchase? A car, a Master’s degree, an expensive shoe? Bring awareness to your spending. If you can’t pay off your credit card  completely at the end of every month, you are spending too much.

      2.  Pick A Job That Is A Fit, And That Hopefully Pays Well

Pick a job that you love, can do for a long period of time and can master. Having a good, consistent income is the cornerstone of life.

      3. Have A Strong Credit Score

This is the most important number in your life. Having a good credit score is like being in a full blown relationship. Guard it. Respect it. Build it. Imagine what kind of savings you can get over the duration of a car loan or home loan. The savings literally in the thousands of dollars.

      4. Consistently Add To Your Savings and Investments

Sock away your paycheck. Invest your money in passively managed funds: Index ETF Funds, Index Mutual Funds (we’ll explain these in a following article). Keep what’s left over in a high yield online savings account.

      5. Make The Right Relationships

They say you are the average of your 5 closest friends. It’s true. Be selective in friendships, your love life and all relationships. Be purposeful in who you connect with. Time is limited.

That’s it. That’s my list of Commandments to a happier life. Thoughts? Leave me a comment!

Is It A Good Time To Buy A House In The Bay Area?

I am always being asked by people on whether it’s a good idea to buy a house in the Bay Area. If you are going for the long haul, as in willing to hold for more than 5 years I’d say you are making the right move. I am expecting a dip of 10% to 15% in 2019 depending in which neighborhood you live. But that’s not all that significant since a $1.5M house would now still be worth $1.35M. That’s a $300k vs $270k down payment. Really no difference and your mortgage doesn’t change too much.

One thing is for sure, we are at the highest point in the curve than we have ever been in the past, and the higher you are the harder you fall. People are expecting a crash on the same scale of 2000 and 2008. But those were once in a century crashes even though only 8 years separates them. We don’t have a dot com situation and we don’t have a sub-prime problem out here in Silicon Valley.

Check out this chart provided by Paragon Research:

The Bay Area is price protected as there is no more free land to develop and a huge percentage of the population can pay cash, liquidate stocks or have access to other windfalls to use as purchase. Way, way more buyers exist than sellers. Inventory continues to remain insanely low because people don’t want to sell. Foreign money, company exits, RSU’s, VCs, lawyers, dentists, doctors, are your competition when buying a home in this area.

SV has exceeded the critical mass point. It’s too big too fail. It’s the tech capital of the world and nothing is threatening that position. The perfect weather and tech industry is why people flock to the Bay Area. With over 40,000 startups and a myriad of large cap corporations, the next 15 years will bring about more technological advancement than the last 50 years have. Buy housing now or forever hold your peace.


Introduction To Credit Cards. What Makes Up Your Score?

Let’s get straight to the point. Your credit score is literally the most important number in your life. It’s a three digit number between 350 to 850 which lets lenders figure out how trustworthy of a borrower you are. As in, how likely are you to pay back the money you are borrowing?

Quick background: The credit score was originally formulated by the Fair Isaac Corporation. In reality, you have three credit scores, each assigned from a credit bureau: Equifax, TransUnion and Experian. Yes, these three bureaus decide how easy or tough your life will be.

Below are the Holy Commandments of using credit cards? Relax. You’ve got this…

Payment History

This single handedly makes up the core of your score. Have you made a late payment? How late did you pay your bill? You have 30 days after your due date to pay up. If you don’t, your pristine credit report will be tarnished for a long time and you will see your score plunge into a deep dark abyss. Do not make payments more than 30 days after the due date.  

Keep Your Utilization Rate Low

How much of your credit card have you used up? Here’s a tip most people don’t know: you are better off spreading your charges over multiple cards rather than charging it all on one card. If you use up more than 30% of your available credit, you may trigger off a signal to the credit bureaus. Spread your debt, and keep your utilization rate low.

Apply For Multiple Credit Cards.

Contrary to popular belief, having more cards doesn’t reduce your credit score. You can have an amazing score with 2 cards, or 7 cards. It’s how you use them not how many you have. Keep your utilization rate on all cards low. More credit cards gives you a higher total credit line.

Length Of Credit History

Your credit history begins the day you first open up your credit. A longer history helps establishes your credit age. People may unintentionally close their oldest credit card which will reduce your credit history. That hurts your score.

Don’t Close Credit Cards

In my younger, naive days I would apply for credit cards, use them for their perks, and then close out the card. Very bad idea. Closing out cards hurts your score. You reduce your total line of credit. So next time, just pay off the card and throw it away.  Now you’re done.

Pay Off Your Card In Full Each Month

If you can’t pay off your entire balance by the monthly due date, something is wrong. You are spending too much and will soon enough owe a small fortune to the banks. You are now officially in credit card debt and can’t get out. Remember what you don’t pay at the end of the month gets charged toxic interest. What a waste of your hard earned dough.

Request a Higher Credit Line

After you have paid your dues (no pun intended) by making on time payments, call up the bank and request a credit line increase. I have done this time and time again to receive credit increases. Remember, more credit is a good reflection on you. It will help keep your utilization rate lower. If you were given a raise at your job, use that as a leveraging point during this call.

You Can Get Fees Waived

Say you get a late fee of $25. A simple call to the bank can get you a courtesy waiver. I’ve done this multiple times, even with the same card. I even had the $59 annual fee removed from my Capital One card simply because I didn’t use the card enough and forgot it had an annual fee. Be tactful and courteous when speaking to the representative.

Negotiate a Lower Interest Rate

No one wants a credit card with soul crushing 24% interest. After you’ve established longevity with the card (around 6 months) you can give them a call and request them to bring the interest rate down. I haven’t personally tried this, but it can make a huge difference if you have massive balances. Again, be super courteous on the phone. It helps.

Verdict: Your credit score is made up by a lot of attributes. The most important one is if you make your payments on time. Your credit score is the biggest factor in saving you the most money over the duration of your life.