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That's FijiAirways.com. From here to happy. Flying direct with Fiji Airways. I've had a few doom and gloomers on this show in the last few weeks. Some people who make some extremely strong and provocative predictions about the utter collapse of whether it's the world economy or the stock market or whatever, some dire prediction.

And that's unsettled a few of you. I've gotten some emails of people saying, "Josh, well, man, what do I do?" Well, I always try to ask those people, "Okay, practically, what are the practical steps of what to do?" And frankly, I get really frustrated with their answers because I don't find them to be practically useful.

So today I'm going to tell you what my actions would be or what my advice would be if I were advising you or anybody on how to actually practically, actionably prepare and respond to dire financial predictions. And we're going to try to do this in a rational and thoughtful manner.

Let's see if we can make this happen. You got to be the judge of that. Welcome to the Radical Personal Finance Podcast. My name is Joshua Sheets and I'm your host. Thank you for being with me today. I'm so tempted to start this show in the way that Jack Spierko starts his and steal his tagline, teaching you how to invest and live a rich life now and build a plan for financial freedom if everything goes right, or even if it doesn't, or if everything goes wrong, or even if everything goes right.

That's what I'd really love to steal as a tagline for today's show. Now obviously I just stole it. So to clarify for those of you who either haven't heard that interview or are not familiar, Jack Spierko, who was on the show a few weeks ago, the tagline for his show is helping you build a better life.

Let me see if I can do it. Helping you build a better life now if times get tough or even if you don't. And the reason I want to steal it is that even though that's an extremely wordy, I guess, slogan, it's really a useful one. And it's the one that I think should be applied to every one of these decisions.

When I talk about how do you actually protect yourself, what do you actually practically do? If you're new to the world of financial discussion, welcome. And I hereby warn you that the talk of financial catastrophe and economic, stock market crashes and economic doom and gloom, this is a standard component of a discussion of finance.

There's always, always some subset of financial pundits who are predicting economic catastrophe. And I want to hurry to assure you that I do not disqualify somebody simply because they are predicting economic catastrophe. I think it's a very reasonable and rational concern to have. I think it's very reasonable and rational to consider what would happen if we faced a market crash.

What would happen if there were a collapse of the dollar? What would happen if we faced World War III? What would happen if Donald Trump was elected president? What will happen if Hillary Clinton or Bernie Sanders is elected president? What would happen in these situations? These are all useful and thoughtful things for us to consider, but we've got to focus on how should we respond and not respond in a knee jerk way.

Let me read you an email. This comes from a listener. It's representative of other emails as well. Let's just call this listener Jay. He says, "Joshua, I listened to your episode with Robert Kiyosaki tonight. It had me riveted. He kind of freaked me out a bit about his dire predictions.

I've recently built up a little after-tax savings with a betterment account. I do have an emergency savings account too, and we have a couple of rentals and a modest 401k. I wish I had dozens of rentals, but the thought of being over-leveraged always makes me a bit nervous. And I have some work to do, settling my wife on slowing down her overall spending, which is killing our financial independence options.

Anyway, are his predictions legit? Should I really consider buying gold and getting rid of any stock-based investing or betterment or 401k? I promise I'm not asking for your financial advisor advice, just friendly advice. I won't hold you to it, I promise. Love the show. My monthly donation is tiny, but I'm a huge fan.

Thanks." Jay, thank you for supporting the show. Appreciate all of you who do that. And I'm going to try to answer it, but I'm going to do it in a practical way. And let me get straight to the point so that if anybody tunes out at any point along this episode, here's my advice.

No, you should not, based upon Robert Kiyosaki's predictions, sell your stocks. You should not liquidate your 401k. You should not liquidate your betterment account. You should not go out and borrow lots of money in a leveraged capacity in real estate, and you should not respond and react to his predictions in an immediate way.

Rather, you should take his discussion, take his predictions, investigate his sources, think through his arguments, start studying for yourself, slow down, and systematically take plans to prepare yourself. I'm going to give you a bunch of action steps over the course of this show. Before I jump into the meat of our content, sponsor this half hour for today is SoFi.

SoFi is really just a cool modern company that's trying to revolutionize the world of lending. Now, they've got their work cut out to them. It's a very profitable industry. They have many large competitors, but they're working hard at it. Deal is basically this. If you have student loans, if you have other debt, consider checking out SoFi for refinancing options for you.

Consider checking out SoFi and see if you can refinance and consolidate your student loans. They might be able to save you some substantial savings on interest costs. They lend at a lower rate than many other organizations. They have a very simple process. I recently received an email from a listener who said, "Hey, the process was simple and routine.

I was able to cut a bunch of interest off of it. Thanks so much." He checked with me to make sure I received my commission for sending you there, and he was receiving his benefit as well. If you'd like to check it out, go to radicalpersonalfinance.com/sofi, S-O-F-I, which is short for social finance, and that will forward you through to the SoFi website.

If you refinance your student loans through that link, you will get a $200 credit to your account. If you refinance student loans and also after the refinancing process, also if you refinance personal loans there, you will get a $100 credit to your account. So go to radicalpersonalfinance.com/sofi. Now, back to Jay's question.

First thing, how do you protect yourself from dire financial predictions and warnings? I think you first have to learn and focus on learning how to not react based upon fear. If you ever find yourself, as Jay wrote here, a bit freaked out, you know you've got a problem. Now, it's not ...

We all face circumstances that can freak us out easily. That's not the problem. The problem is if we react based upon that, no good decision ever comes from a place of fear. When we start to get into fear, now we're moving with the emotional side and not with the rational side of our thinking.

So how do you conquer fear? Well, depends on the type of fear, but in this context, isolate the cause of your fear and try to think through a scenario and then control for that scenario. The fear comes from not understanding what you're doing and why you're doing it. So slow down, slow down, slow down.

There are a couple of aphorisms that I have heard over the years and have passed along to others that I've thought were particularly helpful. I think we violate these aphorisms constantly and we pay the price for it. As a financial advisor, I would share these with clients, but frankly, if people followed them, I always wondered how much of my advice they would actually take because it was clear to me that many clients would violate these two aphorisms every time they made a decision.

Number one, don't invest in anything that you don't understand. You ever heard that advice? Don't invest in anything you don't understand. Many of us have violated that advice constantly throughout our lifetime. This is one of my issues with the mainstream practice of financial advice, especially when we invest using just publicly traded mutual funds and ETFs and things like that in the broad-based stock market.

Most of us jump into that with very little understanding. What's common practice now is we sign up for a job and the employer will automatically move our 401k contributions into a life cycle target date retirement fund. We're automatically investing our savings in there. They'll automatically enroll us. Yes, I can make all the arguments as to why that's a good thing, why that contributes to good behavior, why that helps people, but the reality is we're asking people to invest their money in something they don't understand.

I don't think we should do that. Don't invest your money in anything that you don't understand. Take that farther. Don't start a business in something that you don't understand. Slow down and get to the point of understanding what you're doing. I'm going to give you some specific statistics in a moment on the stock market that many of you will be surprised by.

Slow down, slow down, slow down. The second aphorism here is of course move slow and take your time. Here's the piece of advice. I believe I can source this one to years ago. I listened to a Brian Tracy seminar on investing advice and he gave this one. He says, "Take as much time learning about an investment as it takes you to earn the money you put into it." Now, I don't know if I've ever fully practiced that advice.

I don't know if it's actually fully practicable, but I love the intent behind that. Take as much time learning about an investment as it takes you to earn the money you put into it. If you're going to make a hundred dollar investment, you should probably do a little bit of research.

Thousand dollar investment, how long does it take you to earn a thousand bucks? If you're going to make a hundred thousand dollar investment or a million dollar investment, how much time should you spend researching that investment opportunity? A lot. Now again, I don't know that it's possible to apply this in the legal sense, in the technical actually following this to perfection, but at least directionally pay attention.

Think about the major financial decisions we make in life, especially the major financial mistakes that perhaps you and I have made and ask if some of those mistakes wouldn't have been avoided if we'd spent a little bit more time in research based upon the size of the financial decision.

I know for me, I probably could have avoided some pretty big mistakes. Those two aphorisms together should indicate that moving slowly is a good plan. I always like, I'm going to be full of aphorisms today, I always like one of the other aphorisms, investments are kind of like buses, a new one comes along every few minutes.

I had a hard time believing that one when I was younger, but at this point I feel it very strongly. Investments are kind of like buses, there'll be a new one along every few minutes. And the case of actual investments, every few months, every few weeks, every few years, there'll be opportunities.

Are there macro market trends that are really useful if you hit them? Yes. But in any market, at any time, you'll be able to find opportunities if you just give a little bit of time. There's always a trade that'll come along if you're paying attention, there's an investment deal, there's a deal, they come along consistently.

So don't move based upon the fear of missing out when it comes to investment decisions. Now in addition to slow down, slow down, slow down, study, study, study. It's your money and you are responsible for it. So if you have any desire of building wealth, you should take an interest in the subject of wealth.

You should be studying it in depth. I believe you are, that's why you're here listening to this show. You're taking that interest, you're working on it. I commend and affirm you for that. That is what will set you apart from many of your fellow investors. Frankly, I do not know of or see a guaranteed home run for the financial protection of a portfolio in isolation.

I don't know of one answer to the question of how do I protect my portfolio from an economic crash? I don't know. There are lots of strategies that could be implemented in different market conditions depending on the type of portfolio that you have. But those strategies are going to be very specific to your actual investment plan.

Just the simple fact of do you own mutual funds or do you own individual stocks or do you own ETFs? Each of those comes with a unique set of strategies that you can apply to protect yourself from a market crash, from a prophecy about the market going to pieces.

Those strategies are complicated and they're specific. It's not as simple as get rid of stocks and buy gold. It's not. I'll do my best in future shows to cover some of those strategies, but they're very particular and very unique. Frankly, especially when it comes to stock portfolio management, this is my weakest area of professional knowledge.

That's why my show is called Radical Personal Finance, not Radical Investment Management. It's my weakest area. My strength is on the personal finance and financial planning side. My weakness is in investment management. I'm constantly looking for intelligent people who have experience in portfolio management. I'm constantly looking to figure out how can we bring some of these strategies to the context of an audio format podcast.

There's so many different aspects of it. But here is why I still continue to do a show and my argument as to why even if I do those shows that will be less impactful to the majority of the audience than what I'm going to cover today. Most people, most listeners to this show and most people in general do not fundamentally have an investment problem.

For most people, fundamentally a market crash is not going to wipe you out. If you are using a mainstream financial strategy and you go through a market strategy, as long as you don't freak out and sell, chances are that in the fullness of time, the value of your investments will come back.

Unless you have all of your money invested in one single company that goes completely bankrupt and you didn't take any preemptive action, most investments will be self-cleansing. If you're investing through the use of mutual funds, the mutual fund manager will cleanse the bad investments out over time. If you're investing using an unmanaged fund, a passive fund, just simply the index, the way those are structured, that will cleanse the bad investments out.

Most companies, though they be rocked back on their heels during a time of massive market disruption, most companies will come back. The values of their shares will recover. Just because the stated nominal value of your investment portfolio declines dramatically, that doesn't necessarily mean that the underlying value of your investment has been affected.

Illustration on this point, if you are living in a house that today has a market value of $200,000, that house is delivering to you a certain lifestyle, certain qualities, keeping the rain off, keeping you warm, keeping you cool, giving you a place to have a bed at night, that house may decline in value in nominal terms by 30% based upon the local real estate markets, but it continues to provide you with those same characteristics of keeping the rain off, keeping you warm or cool, and keeping you a place to sleep at night as it did before.

In a similar way, a good, well-run company might decline in value based upon external circumstances. The nominal value of that stock might decrease based upon ... Excuse me, the nominal price of that stock might decrease based upon a 30% overall decline, but you still have human beings that are using the capital assets of that business, looking to exploit the market conditions and if a company is well-run, it'll come back.

You shouldn't be scared of market crashes. Here's the reality of market crashes. The average intra-year peak to trough decline of the stock market is 14%, meaning that in any calendar year, the peak to trough, top to bottom decline in the generalized value of the stock market is 14%. The record highs, the worst years, been up in the 50%.

Back in '29, '30, the other major periods were '87, 2001, and 2008, if you go and look at some of the charts for that. The best years, down about 6%, but the average intra-year peak to trough decline is 14%, which means that if you're sitting there looking at a 10, 15, 20% market decline, although you might feel differently, you should say, "Hoh-hum." You should expect about a 30% decline every few years and you should be prepared mentally and financially for a 50% market decline at least a couple of times during the course of your investment lifetime.

You should be prepared for that if in any way past history is indicative or illustrative or correlates to future events. Is that a guarantee? No, of course not. Past performance is not necessarily indicative of future performance. We know that, but you should know that going in. What happens is when people make bad predictions, then all of a sudden this emotion and these waves of terror grip people, and then you take a 20% decline and you're ready to say, "People are going to come out with machetes and knives and kill me in the street," and it's just not the case.

That's normal. If you can't handle that volatility, nothing wrong with you. Recognize that you can't handle that volatility and move to something else that's less volatile. My argument is most people don't fundamentally have an investment problem because if the market declined by a substantial percentage, that would not be the biggest impact on their life.

Let me ask you that question. If today you woke up and realized and learned that today, yesterday, excuse me, the generalized stock market prices of stocks declined in value by 50%, how would your life and lifestyle today be affected? For the majority of my listeners, the answer would be not a bit today, except for that cold feeling in the pit of your stomach, but today your lifestyle would not be affected.

What about this week? Just an out of the blue stock market crash. For the majority of my listeners, this week your lifestyle would not be affected. The reason why this impact would be minimal is simply because most people are not living on their investments. Rather, most people are living on their income.

If you are living on your investments, you're actually not living on your investments, you're living on the income from your investments. It's your income, and your expenses will get to that, it's your income that sinks you. Income is what destroys people's finances, the loss of income. That's destructive. If the market value, the market price of your investments declined, that just simply affects your net worth, but you can't spend net worth.

You've got to take income and spend that. My practical advice, if you're expecting a difficult situation, my practical advice is ignore your investments, temporarily, and focus on your income. A market crash will only affect your current lifestyle to the extent that you're living on and spending the income from your portfolio, and to the extent that your other sources of income are affected by the surrounding environment.

Would a market crash, a 50% market crash, have an impact on your lifestyle and mine? Absolutely. Will it be an immediate thing simply because of the market crash? No. It's the underlying causal factors of that market crash that would result in a change. Think back to the flash crash a few years ago.

Really weird thing, all out of the blue, just the market just plummets. Could never figure out exactly what it was. Seemed like there were some algorithms that got messed up, but it freaked everybody out. That did not affect your lifestyle. Didn't affect mine, didn't affect any of our lifestyle.

That was a market crash. But because of the artificial environment of it, it didn't affect us. I mean, there were some traders that were pretty freaked out, and a lot of people trying to figure out what on earth is going on, but that didn't affect you and me. Rather, it's the underlying economic factors that will affect us.

Compare that with a market crash like in the late 2000s. Those market crashes were symptoms of the underlying economic problems, and all of us were affected to some degree by that. Now, if you're living on the income from a portfolio, you need to take different steps. I'm going to briefly intend to cover that at the end of this show.

But if you're not yet living on the income from a portfolio, you shouldn't focus on just the investments. You should focus on your lifestyle. That's what I would emphasize. Do you need to manage your investment portfolio? Yes. If you make mistakes with your investment portfolio, will that cost you in the result of future income and future dividends?

Yes, you should focus there. But you don't need to freak out about that. Rather, if you're going to freak out about anything, you need to freak out about your actual income, protecting that. Income is the magic key to everything. Everything in your life is based upon your income. So you must assure and insure your income as much as possible.

How? First, pay attention to your job. Because what happens is, let's say that you're in an industry that is going to be affected on the back end. Stock market crash and all of a sudden you're in a job where, let's keep it very tied to investments. The people who would be most affected in the short term by a stock market crash are the financial advisors.

This is one reason. When I was earning a significant portion of my income based upon revenues of fees, client fees based upon managing investment accounts, I did not want to take my other sources of money and invest a lot of money back into stocks. I think if you are a financial advisor whose compensation is tied to the value of your client's investments, it's foolish for you to make stock investments a primary and very large portion of your investment portfolio.

Because what happens? Well, the market declines in value. That dramatically affects your income. Your expenses in a financial planning practice are constant. So you have high expenses. Now your income is dramatically affected. And right when you need some other money, you go and turn to your stock investments and, "Oh, wait a second.

My million dollar stock account is down to $600,000." Now, some people say, "Boo hoo, you have $600,000." The point is, you don't feel really good cashing money out when your portfolio is down 40%. So as a financial advisor, if you're in that situation, you need to have your investments in something that has a higher probability of being non-correlating.

I want something that doesn't correlate, if at all possible, to the movements of the market. So the financial advisor would be most affected in the short term because their income is based upon the market value of the stocks. Most of their clients are not going to be hugely affected in the short term.

Who's next affected? Well, what happens is the financial advisor starts feeling the pinch. And so the financial advisor lays off some of their staff, one or two staff people that were just on the edge, maybe a marketing assistant or something like that. Those people, because their income is hurt, that has a ripple effect.

The financial advisor stops capital investments in their situation. They don't buy new computers this month or this quarter. They don't go and buy the new trading software. They kind of make do with the same financial planning software they've been using for a few years instead of going out and seeing what's the good things.

They don't take the trip to the conference this quarter because they're feeling the pinch. They don't take the trip, which is going to incur hotel fees and plane fees and registration fees. They just decide to stay home and just save that money. They pull back a little bit on the golf games.

And all those things have the ripple effect. And that's what happens. That's how market crashes affect. It's not the crash. It's all the ripple effects. It's the underlying weakness that is illustrated in the crash. And it's also all those ripple effects. So you got to pay attention to your income.

Make sure that if you're on a financial advisor's staff that you're not the expendable one. Make sure that you're the valuable one. Pay attention to your job. Be valuable. Be valuable. If you can maintain your income source through just about any recession, depression, stock market crash, etc., you can come out okay on the other side.

If you lose your income source, or sources, you're in a difficult, difficult spot. So spend your time focusing on your income. Make sure that when there's a list of employees who need to be laid off, do everything you can to be at the bottom of that list instead of at the top.

And then do everything you can to make sure that when you do get laid off, it's easy for you to get going again. Establish your reputation. Build your connections. Make sure that you are the go-to person in your industry. Establish yourself as an expert. I'm working on a course right now.

It's a working title is How to Establish Yourself as a Leading Expert in Your Field. Something along those lines. I'll come up with some better marketing term for it. But basically, it's the point is this, is how to establish yourself as the go-to expert so that you don't have to do this hard work of trotting around saying to everyone, "Please, please consider me." Rather, people come to you and say, "Please consider us." You can do it.

If you haven't listened, go back and listen to episode 192, 193, and 194 of the show. That was my effort to try to say, "Hey, we need to pay attention to this." The titles of those shows, 192 was called Recession is Coming, How Not to Get Laid Off in the Next Recession.

Guess what? Recession is still coming and you still need to make sure you don't get laid off in the next recession. 193 was called Make a Backup Plan in Case You Do Get Laid Off in the Coming Recession, Simple Action Steps for You to Consider. Guess what? No matter how hard you work not to get laid off in the next recession, you might still get laid off, so you need a backup plan.

And 194 is called this, You Just Got Laid Off, Here's What to Do Next. So that's the show where if you did just get laid off, you might need some of that information. Go back and listen to those shows. That's an expansion on this concept, but basically everything is based upon income.

So think first and foremost about your income and assure that and insure that. Now how do you protect in case you do lose your income? Well, the first thing is savings. I would suggest to you that if you don't have money that is safe from market volatility, I think you've made a poor decision.

No matter your life stage. It's the fact that you don't have money that's insulated from that market volatility that's the problem, not the market volatility. We've all heard it a million times, don't risk money you can't afford to lose. Well, okay, good. But the question is, are you risking money that you can't afford to lose?

You know what, frankly, many people, if not most, I'm making these percentages up so I'm trying to be careful with my language, but many people have done exactly that. The only real material savings they have are, first, majority of people don't have savings. And if they do have savings, the only real savings are either in home equity and/or in possibly a 401k.

It's trouble because if you face market volatility, you have money that's a very illiquid asset, takes a lot of time, a lot of emotional energy, and a lot of expense to sell a house. And all of a sudden when there might be ripple effects and markets are down, people aren't feeling so confident, it's kind of tough to sell a house.

Most houses that people own are not very marketable. It takes a lot of money to bring them up to a marketable condition. If you've ever sold a house and real estate agent says, "You got to shine this thing up," guess what? You got to have money to get the work done to shine that thing up, get it ready for the market.

So what happens in many people's situations, they face this double whammy. They don't have very much money, if any, in liquid savings, just money sitting in a savings account, money market funds, safe dollars. They don't have any non-risky assets. They don't have any money in life insurance, cash values.

They don't have any money in an old fixed annuity. They don't have any money in CDs. Rather, any money that they do have is in equity in their house or in their 401k. Market conditions get funky, 401k goes down in value. The only way they have access to the 401k is through the use of a 401k loan, which can be troublesome, especially if they're about to get laid off or if they just got laid off.

Also can be expensive to access the money, and most people don't have much money there. So you get a whammy upon whammy. I don't know how many is a double whammy, triple whammy, quadruple whammy, but now in order to access the money in a 401k, they got to sell investments when the market's down, they got to pay taxes and fees and possibly interest, and the money's difficult to get out.

So that's a problem. And then on the flip side, in thinking about selling the home, most people move too slowly. They don't have the money to shine the house up, so now they got to retail. Instead of being able to get a retail price for it, the house is a little bit ugly, so they got to get a wholesale price for it.

Sell it to an investor who can spiff it up and flip it. Well, that cuts out a good amount of money. They got to sell quickly because they need money, so now they can't wait for a good offer. They're feeling the pressure, so there you got to drop the price.

And all of a sudden now, people are not feeling so confident. The majority of people aren't rushing out and saying, "Oh, let me go buy a house. World's going great. The stock market's going great. The economy, everything's going wonderful, so let's just run out and buy a big expensive house." So that's why the average person, most of your and my neighbors, get hammered.

It's not necessarily just the market volatility. It's the fact that they didn't do planning, so we need savings. You need money that is safe from market volatility, and if you don't have that money and if you don't have a lot of it, I think you've made some poor decisions.

Now we've all done that. I'm not trying to be insulting. I'm just pointing out this is the reality. You broke the aphorism of don't invest money you can't afford to lose, but you broke it because, "Oh, it's just putting money in the 401(k)." That's one of my issues with the mainstream financial advisor community is that we teach that but we're slow to actually implement it.

We tell people, "Put the money right in the 401(k), put the money in the Roth IRA, et cetera. Get it invested." And I recognize the reason we do that. It's because we're working so hard to get people to actually cross that hurdle and stop spending the money and to invest it.

But you're not an average person if you're listening to this show. Let's talk about expense. Savings is the core because savings gives you basically income that you could spend. If you had a year of savings, say your expenses are $4,000 a month and you got 50 grand sitting in a savings account there, you're going to feel a lot better and you've got a year's worth of expenses covered.

Savings is the primary buttress. This is incidentally one of the keys if you are living off of the income from your investment portfolio. Having substantial amounts of savings makes a huge difference in your comfort level. If I get to the point in the future where I'm living on the income from a portfolio, I would always be seeking to maintain two years, two to three, something like that, at least two to three years of expenses just sitting in a savings account somewhere.

Because I know if I can get through two or three years without having to affect my lifestyle, two or three years makes a huge difference in markets. Two or three years gets you from 2008 to 2011. Go run the numbers, that makes a big difference in the value of your portfolio.

So savings, if you don't have savings, that's your action step. I wouldn't run out and sell all money in my 401k. If I don't have any savings, I might move a little bit of it to a safe point. I might move a little bit of it into a cash fund or cash equivalent or I might reduce my contributions a little bit.

I'd stop putting money in the stock account and I'd just start putting money in the savings account. Because the other thing the savings buys you is it buys you purchasing power when everyone else doesn't have any. I mean I've tried to be as open as I'm comfortable being with my own personal investment plans, but frankly I'm a contrarian.

I want to be sitting on cash ready to buy deals when they're available. I want to have the network built. I want to have the deals be coming to me. I want to have the cash set aside. I want to have the sources of financing. I want to be there and be ready when the world is going crazy.

Because guess what? It always goes crazy. It's just a predictable cycle. I want to be ready. I wasn't ready the last time. I wasn't ready in 2008. So I don't know. Is it 2016? Is it 2020? I have no idea. I'm going to keep working productively along the way, but I'm going to be ready and I suggest you are too.

Next, expenses. This is the other key thing. What destroys people is they lose their income and they don't have savings or don't have enough, and their expenses are too high. And that leads to stress. That leads to them raiding whatever's left of the 401k at a far too high of a rate compared to if they had just been a little bit more under control with their expenses.

So how can you buttress yourself against having your expenses destroy you? Well, let's start with the big one. Pre-committed income, aka debt. What do you do when you borrow money? Well, you are committing yourself to a cash outflow in advance. If you've pre-committed your future income in the form of a debt obligation, then when your income is hurt, now you're really hurting because you weren't necessarily planning on that.

So some simple rules with debt, try don't borrow money. Or if you do borrow money, make sure that you don't borrow money that's not connected to another source of cash flow. Don't borrow money for assets that don't produce income for you. It's crazy to borrow money for things that don't create income.

And this is the situation that we face in a consumption society. I got a car payment. I got a motorcycle payment. I got a student loan payment. That one makes me a little bit of tiny income maybe. Got a house payment. And none of those things create income. So when the income dries up, everyone's destroyed.

Now compare that to Jay here was talking about a real estate. So that's the most simple, actionable way for us to think about it. If you borrowed money on an asset that creates income for you, and if you have some margin there, if you lose the income for a month or two, you're not sunk.

All you got to do is come up with a month or two of payments, and then you get another tenant in there, or three months or whatever it winds up being. And you get another tenant in there, and then you're okay. But if you lose your income from your job, the car payment continues tricking, continuing on.

And the only way you can make income off of that is, I don't know, go drive on Uber, something like that. It would be an interesting study to think about and to see what happens to the Uber prices, or Uber and Lyft, how much they pay their drivers during a period of high unemployment.

That would be an interesting study to pay attention to. Any of you journalists or authors or whatever in the financial fields, I don't know, to me that strikes me, that's a story headline I would read. So focus on clearing the debt, and that's something you can do now. The other thing you can do with debt is control the terms of it.

The better the terms are for you of your debt, the better things are. So if you have non-recourse debt, where the person to whom you owe money can't come after you for something if you aren't able to make your debt payments, those types of things are important. If you have a lot of margin, was working with somebody recently here, and they owe too much on their car, well, there's no margin.

They don't have any money, and they can't sell the car and just be free of the debt. If you can just destroy a debt encumbrance and just get your $300 a month back, it's a lot easier to give up whatever you paid into it just to have that $300 a month back.

So that's why debt is so destructive. Consumer debt is incredibly destructive when times get tough. What other expenditures, what other budget categories? Well, you can plan ahead and be willing to reduce some of your budget categories on a voluntary basis. You can also stockpile some of the things that you need and eliminate some of the financial risk.

You can buy, I've talked about this in the past with the alpha strategy, but you can buy all the things that you're going to need for the future. I want to give you some examples of how this is really practical planning. The idea is buy the things that you're going to need in the future now while times are good.

And then you'll be in a better situation where if times go bad, you're not going to be quite so hugely affected. And by buying things you need or are going to need anyway, you can go ahead and get the benefit of those and you're fine and you're happy if everything goes great and we don't face a market crash.

And if we do face a market crash, whatever the definition of that is, then you're still okay. It frustrates me so much when people don't recognize the fact that their predictions could be wrong. It frustrates me when people speak with absolute certainty. When Robert Kiyosaki or Ann Barnhart are just saying, "Well, this is absolutely going to happen," I'm sorry, you don't know that it's absolutely going to happen.

I don't know that it's absolutely going to happen. So I prefer to take a little bit more of a reasonable approach and say, "This is a possibility. How would this possibility affect my life and how can I make a plan so that if this happens, I'm going to be as comfortable as possible?" So let me go through some budget categories and give you some examples.

I pulled up an article I just found with a quick web search. 70 plus basic personal budget categories. Food. You can't... Food. Groceries, restaurant, pet food, and trees. Groceries. What can you do now? Well, you can practice skills of frugality, knowing how to cook less expensively and you can plan ahead.

In my family, if we were experiencing significant financial shortfall, I know absolutely how we could transition our budget to cheaper sources of food. We have some decisions just enjoying the luxuries of life and some of the health aspects of why we don't choose to go as hardcore as we could.

But if you know that you could cut a few hundred dollars out of your budget because you've practiced it or you've thought about it or you've researched it, that can make a big difference. Shelter. Mortgage, rent, property taxes, household repairs, and HOA dues. If you know your house is due for some things, you need a new roof, you need a new appliances, things like that, it might behoove you to go ahead and do those things instead of putting them off.

Because if you put them off and then if you have the cash and you put them off, you're not going to feel so good about doing it in a time of market crash. And if you know you're going to have needed repairs and you're worried about sometime in the future there's going to be a situation, better to have it done today and have the benefit of it than to wish for it.

I'm pausing because I'm arguing in my head that you might get a better deal. If you have a lot in the future, if you have a lot of savings, then some of these things you should consider waiting. If it's not necessary, just make sure you have enough savings and I tell you in difficult times you can buy some things for a lot cheaper than in good times.

Utilities, electricity, water, heating, garbage, phones, cable, internet, think through those things in advance and know what you could cut, know how you could cut it. You don't have to actually cut it all. You don't have to go around turning every light off and adjusting the thermostat and canceling the cable and all that stuff, but at least know that you could and think it through.

Transportation, fuel, tires, oil changes, maintenance, parking fees, repairs, etc. Doing some of those things in advance can be really helpful and really useful. Medical care, going ahead and getting the dental work done or getting the medical work, those types of things. So, you can transition some of those things that you need and you go ahead and do it knowing that you've reduced or eliminated future expenses.

So, can you stockpile some things that you need? I think it makes a lot of sense to focus on building out some resiliency by having the physical items that you would buy with money. So, I've tried to profile a lot of the survivalists and their approach to things. I think if you focus on providing for the physical needs that you have, if you know you have a month or two or three months or six months of food available to you where, "Hey, if my income dried up, I'm okay.

I got enough money to feed my family." If you've thought in advance about the toiletries that you've needed, you've gone ahead and purchased those things, you build a level of strength and resiliency in your lifestyle. I think that's a really valuable thing to consider. It's hard for me to imagine and you got to do this in proportion to your life, but the most practical useful advice, like I can't stand people when, listen, Anne Barnhart talks about like, "Got to go out and buy guns and bullets." Listen, I've never been in a gunfight in my life, but I eat every day.

I don't ever want to be in a gunfight in my life, but I want to eat most days. I can't stand it when people say, "Buy bullets." This is fantasy. It's a fantasy world. It's absurd, but there is certainly a good case to be made for the fact that you might need to have some food when you can't buy it.

I can't stand it when people say, "Go and buy gold." My favorite, I've had James Wesley Rawls on the show a few times. One thing that I appreciate about James is he's actually a reasonable guy. He has some strong convictions about his predictions for the future, but he's a reasonable guy and he takes a reasonable approach to things.

His basic survivalism mentality is to say, "Don't buy silver and gold until you've secured all the things that you're going to need for your life. Don't buy silver and gold until you have your food and your water and your means of purifying water and all of that stuff." Those things are actually useful and practical.

I can't stand the, "Buy gold" advice. It doesn't make any sense. Gold doesn't do you any good in many situations except after the fact. This concept of, "We're going to somehow take gold bars and barter with one another," it's fantasy. First, people don't have any ability to understand the actual value of gold.

Go on YouTube, search some of the gold bugs and pull up some of their stuff. These guys will walk around on the street with a video camera, but the video's on YouTube, and they'll offer people a one-ounce gold coin if they can get within a few hundred dollars of the value of it.

I remember in the past, gold was what? $2,000 an ounce. They're walking around with a $2,000 gold coin and they're offering it to people. People are saying, "What? 50 bucks? 30 bucks?" People have no concept of the value of it. This idea that somehow we're going to go to a gold-based economy is – I think it's a little bit silly.

What's better than that? Well, theoretically, silver. You can get into the whole discussion. I'll do a show on it sometime. But if you're going to go to a barter economy, don't buy gold until you've bought silver dimes. It's a much more practical amount of currency. Does that mean that you shouldn't buy gold?

I don't think so. I think there's a really good case to be made for everybody having some gold coins, but that's not going to help you in a market crash. That's so that you have something that's one of those assets that can insure some of your wealth and you got to know when are you going to sell it on the back end.

So I don't want to go into gold today. My point is just that it's not practical. This advice of buy gold and guns is – I mean, I get where they're coming from, but it's not practical. What I'm giving you is practical and start with this stuff. And then, hey, if you want to buy gold coins, go for it.

I like gold coins. I like guns. That's cool. But I'm not going to be shooting people in West Palm Beach, Florida. There's no chance of that. So invest in the things that you need and then invest in useful capital. So if you're in business, think about what can you do to enhance – what's the useful capital that you can buy?

Look for investments that make sense. Don't get caught up in fear about a doomsday scenario. Recognize that the things that you can do to prepare for that are very simple. And guess what? Let's say that I'm completely wrong because I fully acknowledge that I could be. I think about this stuff a lot.

Let's say that I'm wrong. Let's say there's a massive economic crash. Let's say we go into World War III. Let's say that the zombies are running in the streets with machine guns. Guess what? Everything that I've described and more is still going to help. Now in that situation, I'm going to wish that I'd done what James Wesley Rawls told me to do.

I'm going to wish I moved to Idaho and bought a 500-acre ranch, but I'm not there. I can't do that. I'm not at a place for that. I'm probably going to wish it, but everything else is going to help. Because when you look at the underpinnings of an economy, it's all based on relationships.

This is to my final point in today's show. Invest in relationships. Build relationships in your community. Build relationships in your family. Because when you get into difficult times and you study the times of economic collapse in the past, that's where the benefit has been. If you need capital to invest in something in difficult times and banks aren't lending money because their stock is down and they're all freaking out, where do you get that?

You get it from the rich people that you know in your town. You get it from the people you know who have the capital. Work on building the relationships and building the community that you need now. You lost your job. You got kicked out of your house. Wouldn't it be nice to have some quality family relationships to fall back on that you could quickly go and live with somebody, a family member, and actually have that be a pleasant experience?

That takes time. It takes investment. To sum up today's show, maximize your income, minimize your expenses. Maximize your protection, minimize your obligations. Minimize your choices and options, and minimize the entrenchment of your current position. Take those ideas and look at all of your current affairs, and what you'll see is that all the stuff that you would need to be doing in a market crash is all the same stuff that you should be doing today no matter what.

When you recognize that, you realize that you don't have to worry about the market crash. The markets crash, markets go up. Things change all the time, but it's the same skills, and it's the same activities, and it's the same habits done reliably and consistently all along the way that lead to the strongest of results.

I think it's so valuable to think about market crashes. I think it's so valuable to think about dire economic prognostications, and ask yourself, how would I handle this? Because that will improve your risk management skills. Here's where I want to go back to Jay's email and just touch on these things and show how this applies.

I've recently built up a little after-tax savings with a Betterment account. I do have an emergency savings account too. Jay, that's what you need. You want to look at that and say, "Am I comfortable with the size of that?" You should be doing that at all stages. We have a couple of rentals and a modest 401(k).

That's what you need. That's what you need to get you through a market crash. You've got a couple of rentals and an emergency savings account. You've got some income. Then you're in a situation where if your 401(k) goes down and your Betterment account goes down, you still have real estate.

You still have savings. That's what you should be doing. I wish I had dozens of rentals, but the thought of being over-leveraged always makes me a bit nervous. It should. You should never be over-leveraged. I don't buy this nonsense about borrowing $500 million and buying real estate. Now, I'm willing to be wrong, but I don't buy it until I see some proof.

Doesn't happen. You should not be over-leveraged. Even when you're using leverage, you're always thinking about what's the worst-case scenario. When you're looking at your real estate portfolio, you should look at it and say, "Let's assume the worst-case scenario. How would I fare and how can I minimize my risk?" Maybe you'll get busy and pay off this property and you'll refinance this debt here to better terms.

That's exactly what you should do. Goes on anyway, "Are his predictions legitimate?" Of course they're legitimate. He's making the predictions. Guess what? There's always somebody making predictions. Now, to Kiyosaki's benefit, I haven't read his book, Prophecy, in years. It's probably been updated, but just go down to Barnes & Noble.

Do what I do. Every few months, go down to the local bookstore and just browse and there's always a new book on prophecy. There's always a new financial prognosticator saying, "This is going to be the year." Now, I don't know if this is going to be the year or not, and I don't know how to know if this is going to be the year or not.

If you want to pick a guru that knows, go for it. All I know is I've seen a lot of gurus get embarrassed and be wrong. What I choose to do is to recognize that could happen. Let me make a plan for it. Let me also make a plan in case it doesn't happen.

Should I really consider buying gold and getting rid of any stock-based investment better than 401(k)? Sure, you should consider it. Should you do it? Well, that's going to depend. Can you handle the volatility of the stock market? If not, you probably should get out. I think a lot of people should get out of the broad-based stock market because they can't handle the volatility and they make stupid decisions.

They have bad financial advisors who can't coach them through the corrections and the crashes and whatnot. I think a lot of people would be much better served in investing all that money in some other capacity. I really do. But I'm not finding fault with the stock market. In the stock market, you pay the price for your returns by being willing to sit through the volatility.

Now, should you consider buying gold? Yes, you should consider it. So here's my challenge to you. Consider it and understand why you should buy it, when you should buy it, and then when you should sell it. What is your purpose for it? What are you going to do with it?

What benefit does it bring you? What's your plan for it? What percentage is appropriate? Now I know I'm supposed to be giving you those answers and hope I'm not copying out. I'm just trying to wrap up the show and say, "Yes, you should consider those things just like you should consider the scenario of any person." It's why I try to bring such a diversity of guests.

Do I do it great? I don't know. But I'm trying to present a huge variety of perspectives and opinions, and you should consider what anybody has to say. But at the end of the day, you are responsible for your money. You're responsible to do the research. You're responsible to understand what you're doing and why.

You're responsible. Pay attention to that responsibility. Learn from everybody. Incorporate new research. When somebody mentions a book, mentions something, buy the book. I'm going to listen to podcasts. First thing I do, somebody recommends a book, I stop. If I think it's going to be valuable, pull out my phone, pull out the Amazon app, buy a used copy.

You usually pay a penny and $3.99 of shipping. Just click, one click buy, done. Now come look through that book. Do I agree with this author? Do they have something I haven't seen before? Is there some thought here? Is there something that I can gain from what they're having to say?

And look for the information. And when you make a habit of doing that, you slow down, you do your research, you study, study, study. Then what'll happen is you won't respond to these predictions from a place of fear, but you'll have a confidence that you know what you're doing and you know why you're doing it.

You know where your blind spots are and you know you can get through. And you know what? That's what will transform you into a millionaire. And that's what will transform you into the type of person that could be picked up, placed in almost any society, in almost any place in the world.

As long as there's a little bit of freedom and enough advantages, you can apply those same skills. And if you lose it all, you can build it right back. One of the most amazing things for you to study in the future is look at how many times self-made millionaires have lost it all and gotten it back again.

It's really, really astounding when you start looking at it. It seems like most millionaires have to lose it all a couple of times till they finally get their risk management down. So I don't think it's required. I think you learn vicariously. But the key is the thought process and who you become and the process that you apply.

Hope that's helpful to you all. It's my best way of answering it. I guess I've seen so many people. In 2008, I watched so many people. I'm going to freak out. Cash out my 401k. Buy a bunch of silver coins. How's that working for you? Not so well. Thank you all for listening.

I appreciate the time and attention that you have honored me with today. I hope this content has been useful. If you have any comments on today's show, feel free to come by the blog and comment on this episode. I'd be happy to hear about that. If you've got any additional ideas, if I have any blind spots, feel free to come by and share with me.

Thank you to the patrons of the show. If you would like to support the show directly, unhindered by using any advertisers, if this content today has been useful to you, I would invite you to become a patron of the show. Take the financial impact of this show in your life.

Take 10% of that and send it to me, radicalpersonalfinance.com/patron. All the details there, radicalpersonalfinance.com/patron. Until next time, move slow, study, study, study, and think carefully and comprehensively. I wish you all the best. Bye. (upbeat music)