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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

Recession-Proof Your Finances | Us vs ChatGPT

Recession-Proof Your Finances: Which gives better advice on recession-proofing your finances? Experts or ChatGPT? That's what we decided to figure out in this episode.

We agree on several recession-proofing ideas. However, our most important tips are different than Chat GPT (whew!)

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Bridget: Hey, John, there are two things people are talking about right now: the recession and Chat GPT. So, in this episode of Friends Talk Financial Planning, we'll talk about how to recession proof your portfolio and what Chat GPT says versus what Friends Talk Financial Planning says on this topic. Hi, I'm Bridget Sullivan Mermel, and I own a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer, I own a fee-only financial planning practice in Middleton, Wisconsin. And before we start talking about how to protect yourself against recession and checking what Chat GPT has to say, I want to remind everybody to hit that subscribe button. When you subscribe, it helps other people find this episode and this content on YouTube.

And with that, let's talk. I love how you presented that, Bridget. What's on people's mind? Chat GPT is all over the news, and everybody's predicting a recession. What do we do about that? It's one thing to predict, but what are the action steps? What do you tell clients about protecting themselves from or preparing for a recession?

Bridget: Well, the first thing I ask people is why they are you worried about a recession? What emotion is at the root of this? And I'm not saying that's wrong at all; emotion is great. But what are you really worried about? And that's my main question.

John: I think that's such a great question because the stock market and the economy are connected, but they're not the same thing.

Bridget: And we have the talking heads like us, too😊

John: That's right. And so, when people ask, “Is there going to be a recession,” the first question I ask is: “What do we do about the upcoming recession?” First of all, how do we know there's going to be one? And then what are we really talking about? And it sounds like a silly question, but it kind of makes folks step back and say, “What am I really worried about?” Is it the stock market going down? Well, the stock market went down pretty far last year, right? And so, what's really the underlying thing.

Bridget: Right.

John: And I think a lot of folks can't really define what recession means to them. For example, they might think, “I know I'm kind of supposed to be scared about a recession but why?” And then you go, “Okay, well, jeez, maybe I don't need to think about that quite as much.” But when there is a recession, typically we're seeing people losing jobs. There're job cuts going on right now in many different sectors, especially tech. And so I think for a lot of folks, the answer is either, “Boy, I don't know why I'm scared,” or “My job is the thing that the recession is going to impact, and I need to think about that.”

Bridget: And I would say that's absolutely true. So from my perspective, the most concerning thing about a recession is asking, “What are your job prospects like right now?” And so it's a good time to think about that. And if you are retired and don't have a job, then it goes back to asking…

John: “Why are you worried about a recession?” And oftentimes it goes back to the stock market or those things, but to be clear about what problem we're trying to solve is very important.

Bridget: Exactly. And so, if you are worried about your job, that is totally legit, and then we have specific things to do about that. The other things that I'd like to ask is: “Who's the most vulnerable?” The answer: people who are contractors. And traditionally, if you were working remotely, you'd be more vulnerable if there're job cuts. But I don't know if that's still the case. It’s hard to say.

John: Maybe five years ago, but these days, probably not.

Bridget: Yeah, exactly. That might be different now. So if you are a contractor, then what do you do?

John: I just want to pull that out for a second, Bridget. What do you mean “being a contractor”? That is one of the reasons a lot of times people use the term 1099 employee, which is a contractor who says, “I'm not an employee of the company.” You might hear that as you're talking with friends if you don't know it yourself.

But one of the reasons why a company hires a 1099 employee or hires a contractor rather than bringing on an employee is because it's easy to cut those people loose. They can bolt those folks on, hire them for a project, and they can also fire them for a project, or cut them out, much easier than having an employee. So I just wanted to point out that that's one of the reasons why if you are a contract person and not a W-2 employee, where you get a payroll, a paycheck every two weeks sort of thing, that's where that really comes into risk.

Bridget: Exactly. So if you're concerned about it, that means that maybe you're not that great of a contractor. Some people thrive on the gig economy and being kind of an entrepreneur, but some people don't, and they'd really rather have a regular job.

John: Right. I look at it from the employer standpoint. Even if you're an awesome contractor, if I've got budget cuts and there's only so many dollars to go around, who goes first? It's not the people in my family, so to speak.

Bridget: Right.

John: It's the people that are working for the family, if you will. So my employees, as I think about it, those are my employees. The contractors are hired guns, and the hired guns are the first to go when things get tough, or at least they could be the first to go. We got to be aware of that. It’s not like this is what's going to happen, but, hey, if I'm one of those hired guns and I'm really good at doing my thing, that's awesome, but when things go bad, I've got to protect my downside.

Bridget: Right. And so, the other thing we would like to talk about is if you are in an industry where you’re at risk, maybe you're in the tech industry or you're concerned about it, then dust off your resume, start some networking, get back into thinking about it. And taking some action might help you more than just being reactive.

John: Right. Not that you have to go out looking for a job, but it's about being smart, being aware and proactive on those things. And we've seen a lot of job cuts in the tech industry, especially recently. We're also starting to read about, anyway, other things in manufacturing and other places. And the one that I've been seeing, anyway, is the age-old problem of middle management being cut out. I think FedEx had some cuts, and it was all the management side of things.

And again, just being smart and being aware of that by asking, “Hey, if things start to go bad or continue to go bad, am I in the position where I might have to look for a new job?” And then just being smart, as you said, making some connections etc. Be thinking about that stuff. How about from a financial standpoint, like a pure rubber meets the road sort of thing, what things are you recommending to folks? Let's say I'm a contractor, I'm a middle manager, I'm in tech. Geez, things are getting a little bit dicey, and if something goes bad, I might be at risk. What things from a financial standpoint, do I need to start thinking about?

Bridget: So here's the first thing, and we totally agree with Chat GPT on this matter.

John: Wait a minute! Chat GPT agrees with us😊

Bridget: Well, all the things that we've talked about so far are not on Chat GPT, but the next thing is, and that is having an adequate emergency fund.

John: How do you talk about emergency funds with folks?

Bridget: I talk about 10% of your annual income. But now if you're a contractor and you're worried about recession, etc. I say double that to be 20%. And again, geez, they're cutting people at my job, and I'm really worried about, okay, make it 30% of your annual income. Have that in your savings account.

John: And I just want to point out that when you say 30% it sounds great but think about what 30% of your annual income means. If you're making $100,000, that's $30,000. I can do math easily in my head on that one. But if you think about having, in that circumstance, $30,000—and of course, if you're making half that, cut that in half—that's a lot of money to have in your checking account, more than maybe what it feels like you should have. And so, I just wanted to point out that I agree with where you are on that, but it can also feel like, “Why do I have that much in checking; it’s only earning 0.1%?”

Bridget: Well, you might put it in your savings account. Go ahead and get a savings account. Now, here’s a slight difference with Chat GPT. People don't know what their expenses are. I hate to say it, so Chat GPT recommends it based on, I think, three to six months of your expenses. And again, we as financial planners, we found that people are clueless about what their expenses are, but they usually know what their income is, so that's what we go with on that number.

John: I agree. It's really hard. And yeah, clueless is a good word, because it's often really hard to figure out what your expenses are, but it's not hard to figure out your income. You get a scorecard every April when you do your taxes. If you pay your taxes on time, there's a scorecard. That's how much I make. I can do the math on that. It's really easy to sort of figure that out.

Bridget: Right. And then the second recommendation we have on your finances—which again, agrees with Chat GPT—is pay off your debt. Credit card debt particularly. I want to call out credit cards on this. Pay off your credit cards so that then presumably you will have a little bit of room if you need it if you do have a job loss.

John: And I think having your credit cards paid off all the time is the ideal situation. If you find yourself where you don't have those paid off, putting money into that is key. And I look at that and say, “If I get my credit card debt paid off and I have a situation where I'm out of a job, the credit card is almost like an emergency fund, almost like a line of credit type of a thing, without having to go through those processes.” That’s not ideal, that’s not what we want to do, but if I lose my job, that's not ideal either. In that way, we've got some bandwidth and some emergency options to be able to react to things.

Bridget: Right. And here's something that Chat GPT did not mention.

John: Can I bring up one thing before we go on? We just talked about paying off debt, and we talked about credit cards, which is awesome, but what about a house mortgage?

Bridget: Okay, awesome. Yeah. Don't prepay your mortgage. Yeah, keep making your mortgage payments, but it's not going to help you to prepay your mortgage because if I prepay my July mortgage, that doesn't take off August, that takes off 25 years from now when my mortgage is done.

John: And if I pay off my credit card, then I can also borrow against my credit card or use it to charge things. If I pay down my mortgage, I can't necessarily take that money out. Flexibility is really the key here.

Bridget: Exactly. Instead of prepaying your mortgage, put it in your savings account.

John: Yeah. And I jumped on top of you. I'm sorry. What did Chat GPT have to say?

Bridget: They didn't talk about that.

John: Okay. They didn't talk about that all.

Bridget: They didn’t talk about the mortgage. The car loan would be kind of in between. For example, if you have a car loan or a boat loan…

John: Some people may.

Bridget: I would sort of play it by ear on those. If you're just about to pay it off, you might want to pay it, because then you wouldn't have that ongoing expense, but that wouldn't be my first choice. Again, having some money in your savings account to be able to have some flexibility, I think, is key in these situations.

John: Great. Was there anything else that Chat GPT had to offer that we don't agree about?

Bridget: Well, this is not something that we don't agree with, but it's stuff that is just advice that nobody would ever disagree with, like diversify your investments and save for retirement.

John: Yeah. Nothing that you strategically do about recession.

Bridget: Right, but it's always good advice.

John: Yeah. Great. So it sounds like Chat GPT agreed with us on some things and they were wrong on other things, right? 😊 That's how I think of it anyway, but hopefully you guys got some good tips. If you're concerned about the recession, think about why. What does it really mean for you if we do have a recession? And then make sure you take some actions to help settle things down. Pay off debt, build up those emergency funds, and be prepared. So with that, I'm John Scherer, and I run a fee only financial planning practice in Middleton, Wisconsin.

Bridget: And I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois. And we're both members of ACP or the Alliance of Comprehensive Planners. We're both taking new clients now, but if you're interested in other advisors throughout the country, you can check out

John: And don't forget to hit that subscribe button.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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