Episode 3 - Recession or Not, Let's Build Wealth

In this episode, I take a look at the latest GDP report from the US and what it might mean for everyday people. I consider the economic definition of a recession from a GDP standpoint, why we all should pay attention and individual steps that we can begin to take to protect our personal finances.

I go on to discuss some pillars of wealth building and how you as an immigrant may begin to leverage them to secure the bag. None of this is financial advice. Everything I say is for education and entertainment only.

Enjoy the episode!

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Transcript

Hello and welcome to TIB, The Immigrant Bag Podcast. I’m your host, Modupe Ogunyemi. And if this is your first time of tuning in, this is the place where we talk about personal finance specifically for immigrants and how we all can secure the bag. As always, we start with a disclaimer, I am not a financial adviser, everything I say is for education and entertainment only.

This week, I’m going to start off by talking about the most topical issue in the news right now and that is recession. Now unless you’ve been living under a rock these past few days, you would know that the US released their quarterly GDP report last Thursday and it showed a negative growth of about 0.9% or so. That makes it the second consecutive quarter of negative growth and by definition, a country’s economy is in a recession if it has 2 straight quarters of negative GDP. Now, the authorities aren’t calling it a recession officially because they say there are other sectors of the economy that are holding up and showing positive strength. However, what should you and I take away from this report? First of all, what is the GDP and why should we care about it? The GDP is the economic snapshot of a country. It’s like the report card of how the economy is doing. You know how when you go to school, at the end of each term, they give you a report card to take home to your parents? Yeah, the GDP report is like the government’s report card that it presents to us, the people, as a yardstick of how well the economy is doing, if it is growing and everything is you know, chilling. From last Thursday’s report, it is not chilling chilling o. Infact it is far from chilling chilling.

The components of the GDP, that is the key sectors that it comprises are: consumer spending, business investments, government spending and net exports. Now out of all these, consumer spending makes about 70% of the total. And consumer spending is where you and I sit. If that sector has K leg, like we say in Lagos, it means people are not spending like they normally would on everyday goods and services like food, clothing and so on. And when people are not spending like they would or should, the economy begins to catch a cold. That cold is what we saw in the latest GDP report from the US. It might not be a full blown fever yet, depending on which explanation you choose to believe but here’s why you should pay attention. One,  2 straight quarters of negative GDP growth is not a positive economic sign, whichever way you want to look at it. Secondly, the US has about the highest total GDP in the world so if their economy sneezes, best believe many others will catch a cold. So please pay close attention to the economic indices coming out of the US. And if you haven’t started reigning in your discretionary spending yet, a.k.a spending on things that are not essential, ahem, let me just tell you an African proverb that our elders say to us when we are kind of misbehaving or not thinking straight. They would say: use your tongue to count your teeth.  Ahem, that’s all I’m going to say. Remember I am not a financial adviser, everything I say is for education and entertainment purposes only. 

Okay, now that we have finished counting our teeth, hahaha. Let’s move on to the actual topic for today: how can you build wealth as an immigrant in this new country that you have found yourself? Many of us think buying a house is the way to build wealth. And while there are lots of arguments for and against that mindset, I just want to point out that the current inflationary conditions of the market, and rising interest rates may be pushing houses beyond the realms of affordability for many immigrants right now. Remember, as an immigrant, you’re probably only just building your credit, equity, and cash for downpayment. So if homebuying is expensive for everyday people, it is doubly expensive for an immigrant. So what do you then do? You can’t just stand on the sidelines and do nothing because you did not cross the Atlantic Ocean to come and count bridges here. So how else can immigrants build wealth meaningfully and sustainably?

One such way is through your RRSP. I touched on this a little in the last episode but let me expand on it a bit more here. The advantage of an RRSP, Registered Retirement Savings Plan as it’s known in Canada. I think the American equivalent is called ROTH IRA. In Nigeria it’s called RSA, retirement savings account. Anyway, the advantage of having an RRSP is that you do not pay tax on the money you accrue in it until you withdraw the money. And for many people, you may not withdraw from it until you’re actually retired which is the whole essence of the account anyway. Not only do you get the benefit of tax-deferred growth, you also benefit from the magic of compound interest on your contribution which can give you earnings that are sufficient to offset the tax you’ll pay at withdrawal. If you work in a company that matches your RRSP, it really is a no-brainer. You should be contributing the maximum amount that you’re allowed to.

Another way to build wealth is the stock market. But it is also a place where you can go broke really quickly if you don’t know what you’re doing. You know the saying, a fool and his money are soon parted? Yeah, they were probably talking about the stock market. But if you’re serious about building wealth, you should be serious about learning and understanding how money works. And the first step to building wealth is to know how to earn money. That we all learnt in school. Remember the go to school, get a good grade, get a good job mantra? Yeah, we’ve all been there and done that. The next step is to learn how to save money. You’ve got to know how to put money away for a rainy day, how to live within your means, how to live debt free as much as possible, how to save more than you spend. You’ve got to intentionally cultivate that habit. However, that in itself is not the be all and do all of building wealth. Once you’ve mastered the art of earning and saving, you need to learn the art of growing your money. You’ve got to learn the art of making your money work for you. And I am yet to see anything that puts money to work for people better than investments. Smart, informed, educated investments. Anything short of an educated investment is gambling and the stock market is the biggest casino if you go on there foolishly. It is also one of the biggest wealth builders if you educate yourself about it, participate in it from a position of knowledge AND, now this is very important, AND you play the long game.. What do I mean by playing the long game with the stock market? I mean do not buy a stock today and expect it to triple tomorrow, this is not a magic money doubling game. Okay? You know what Yorubas call s’ogun dogoji, turn 20 to 80. No, no, no. The greatest investor of our generation, at least by my own estimation, the Warren Buffett has a great way he put it. He said if you’re not willing to hold a stock for 10 years, don’t even bother to hold it for 10 minutes. 

Now there are people who do things like day trading, swing trading, scalping and all that with stocks. So they buy and sell with very high frequency. While these traders may be booking profits with their strategies, it is important for you to know that there is a difference between trading and investing. One is short term, one is long term. And they each have their peculiarities that we will go into in subsequent episodes. As a matter of fact, I might bring some guests unto this show who can shed more light on trading versus investing in the stock market and the strategies that they employ to build wealth. Again, please bear in mind that I am not a financial adviser, everything said here is meant for education and entertainment purposes only.

That said, this is my message to you as an immigrant that’s determined to build lasting wealth. Start from learning how to earn money, then learn how to save money, then learn how to invest money. That’s the journey and the roadmap, ladies and gentlemen.

Okay, that’s it from me for today, thank you so much for listening. Till next week when I come your way again with another episode of the immigrant bag, stay safe out there, keep your money close, keep your friends closer and keep your family closest.