In addition to the emergency backup fund, it could be prudent to establish your own, controlled backup cash generator to serve as a source of income for your family. Early in my career, my obsession was with creating these “cash generators” that would bring in investment capital no matter what I did with my day. During college, I’d be sitting in a coffee shop reading annual reports and collecting dividends, royalties, interest, and fees from my past projects and investments while my friends worked at retail stores and restaurants, selling their time for a much smaller paycheck. This approach was key to my success because I didn’t come from a wealthy family and knew that one of the surest ways to build my net worth would be to focus on scalable items – where I could get paid for successive units sold after the work was already done. In other words, I’d rather be the guy that designed a new type of lipstick and sold millions of units rather than mowing lawns because each excess unit of lipstick generates profits but doesn’t require much additional effort yet to make more money in the lawn care business, I’d need to put in more hours and hire more people.
Tens of millions of people now generate excess cash by selling goods on Ebay. Think about that – it would have been almost incomprehensible twenty years ago. If you can find a product people want and are able to sell it at a price with attractive enough margins, you are going to bring more capital in to your life. If you use this to buffer your investments, build up a cash reserve, and pay down your debt, you will find that you don’t rely on your job as much, freeing you from the emotional prison of dependency. Others use their day jobs to fund projects such as car washes, storage units, or opening a gift store. None of these are a sure thing and can actually lose money if you aren’t careful, but provided things go well and management is able, it’s possible to turn a profit.
Consider Investing in Tangible Goods
If a recession happens to be accompanied by the chance of rising inflation – which is not a given – you might want to consider investing in some sort of tangible asset that is likely to be unaffected by a drop in the purchasing power of the dollar. In the current market, investors that have great credit, plenty of cash, and little debt might be able to find absolute steals in real estate, picking up properties for far less than they were selling for only a few years ago. This value-based approach is the heart of the statement often made by Warren Buffett that you should, “be greedy when others are fearful and fearful when others are greedy.”The only caution is that there is considerable historical evidence that suggests real, after-tax, inflation-adjusted wealth is far more difficult to generate in the commodity and real estate markets as it is by owning businesses and common stocks. Of course, there are always exceptions, but on a buy-and-hold basis, they don’t appear as attractive to me for the average investor that doesn’t have a high level of knowledge about macroeconomics and usage trends of metals versus inventory levels, for example. The theory holds that these types of investments could offset the damage that is done during inflationary times to bonds and other fixed income investments.
