Money Musings 💭 Was it hard work?

When I was on Farnoosh’s So Money podcast most recently (btw - highly recommend it!), we talked about generational wealth.

I define generational wealth as any amount of money that family (or the generations before) provide or have available to support the next generation.

We often think of trust funds and estates, but generational wealth can and often means having college paid for, receiving a gift to purchase your first home or being able to get a family loan to pursue a new business idea.

Side note: Jamila, of Journey to Launch (another podcast I highly recommend!) also talks about internal wealth. The impact of pouring love and confidence into your kids. I love that! But I digress...

In Financial Adulting I talk openly about how I’ve benefited from generational wealth and how grateful I am for it. I’m so proud of what my parents have accomplished and built.

I also talk about how I hope (and plan) to be able to give some of these same gifts to my children.

As parents, generational wealth can be one of our goals. It’s what many of us hope to be able to provide for our kids - in whatever form we can or believe in.

But ironically, despite that goal, I've noticed that generational wealth also gets vilified.

I see many variations of the meme - "was it hard work or was it generational wealth?"

In our conversation, Farnoosh asked "can’t it be both?" I say yes. There are plenty of people who benefit from generational wealth and do nothing with it.

Now, believe me. I also understand the rage. There is SO MUCH pretending going on.

People tout their success as a "self-made" millionaire or claim to have built their business from "nothing," and they don’t acknowledge the substantial investment they received from their parents, that they had help purchasing their first home or didn’t have to take out student loans.

People also PRETEND that the ability to build generational wealth has been equally available to everyone. This couldn’t be further from the case. Enter the racial wealth gap and all the things that contribute to it.

Being honest about where we’ve had a leg up and have experienced privilege is an imperative part of this conversation.

AND at the same time, if generational wealth is the goal, it won’t serve us to view it as evil in and of itself.

We just want all people to have the opportunity to benefit from it.

MONEY MOVE OF THE WEEK

GET RECESSION READY STEP #3 - MAKE A PLAN FOR YOUR INVESTMENTS.

During a recession, our investments may go for a wild ride. We’ve even seen this the last few months - the market and probably your investments have been down.

Remember here when I said the biggest risk with investing is that we’re human? We need a plan. Here’s how we prepare for a potential recession:

Check in on your investing goals. When we are investing for the long-term we have the time to let our investments ride out the drops in the market. Check in on your goals, especially the timeline for your goals, to confirm that you have the time to wait. Or adjust accordingly.
I give you permission to look away. If you are in the habit of checking your investments everyday, I recommend building a new habit (unless you have a stomach of steel). Watching the ebb and flow of our investments - especially when they are going down - makes it more likely we are going to make an emotional decision (namely sell!) and can cause unnecessary stress.
Get a buddy. Having a money buddy (or financial professional) to check in with when the markets are volatile can help us stay the course. They can support you and encourage you when you are feeling nervous and you can do the same for them.

I’ll leave you with two important facts:

FACT #1: You don’t actually make or lose money until you SELL your investments. So when the market is down, you haven’t lost money (unless you need to sell then).

FACT #2: Over the past 30 years the S&P 500, which is often used as a proxy for the stock market, has earned an annual return of 8.29% (adjusting for inflation). And that includes the market drops of the great recession and pandemic.

Hang in there!

YOU GOTTA SEE THIS

DEFINE: RECESSION.

We're not officially in a recession but there is a LOT of recession talk.

Here’s the technical definition: Gross domestic product (or GDP) is the most common method to track an economy’s health. GDP represents the value of all the goods and services produced over a specific period of time within a country.

A recession is measured as two quarters of negative GDP growth.

What would a recession mean for us? Recessions vary in length and severity (I know, very helpful) so it’s anybody’s guess. And lots of economists and experts are making guesses.

For us individuals, a recession might mean:

Job loss or reduction in income (as companies may layoff employees or business may slow down for entrepreneurs)
Higher prices (hello inflation)
A down or turbulent market. Stay the course - the market has always come back in the past. If you have the funds, continue to invest to get in on those low prices!
Higher interest rates. This makes debt, including mortgages, credit cards and student loans more expensive. It also improves the interest we get in our savings accounts)
Lower home prices. A bonus if you have the funds and are in the market.

While a lot of that doesn’t sound good (ok, it sounds really bad 😭) and recessions can be very challenging times for folks, these charts Farnoosh included in a recent article provide some perspective on these stats over the longer term. You can read the full article here.

30-year fixed-rate mortgage averages in the US