Oh, the middle class and lower classes are getting absolutely screwed by this: a forced economic recession from the Federal Reserve coming in the back so printing too much freaking money, Take a look at some of this data and then I'm going to provide some suggestions towards the end of the video. First, Oh boy, the share of 401k Savers So retirement Savers right? Who withdrew cash for a hardship is at an all-time high. Now what you need to know about this chart is: this chart goes back to 2004. there's a reason it goes back to 2004..

hardship withdrawals were first enabled at the end of 2003. So this means in the history of hardship withdrawals, we are at the highest level of hardship withdrawals two and a half times the level of where we tend to Trend to half a percent. Which that might not seem like a lot, but it's the info. Election: Point That's scary.

Very, very scary. Not only is that scary, but it's probably a really bad financial decision to see two and a half times. First of all, as many hardship withdrawals, and then to consider the finance implications of this. First of all, you're probably.

If you're you know, selling your stocks that are invested in your 401k, you're probably capitulating. Maybe you're selling relatively close to the bottom. But not only are you doing that, you are taking a 10 penalty and you're paying the tax. So if you had a hundred thousand dollars in your retirement account and you took a tax deduction to invest that via your 401k, or you got some employment matches or whatever.

Now you're paying income taxes. so maybe you're paying 30 in income taxes plus a 10 penalty. You just reduced your retirement account by about 40 percent. So usually you pay less in taxes when you go retire because you're making less money.

You're retired. So you take out a little bit of money and pay potentially no taxes or very little money in taxes. But if you're taking a hardship withdrawal, you're often doing that while you're still working. And now what happens? Well, you're getting hit with a lot more in taxes and you lose the ability to refund that money.

It's not like a loan where you could pay it back to your 401k plan and put it back in. You lose that ability. so you're back to that annual limit of being able to put the money back in your retirement account. And just look at what the IRS says here.

The hardship with a distribution will permanently reduce the amount you have for retirement because again, you, you can't You can't contribute, uh, to, to, uh, recoup what you've lost. You can only re, uh, recontribute up to the amounts that are, uh, set by based on the limits. Every single year you also pay tax. You pay the 10 penalty.

Unless you're 59 or older qualified, you're not able to contribute for six months. They actually ban you from contributing to your 401k for six months after. That's incredible. That's insane.

So hardship withdrawals are skyrocketing during this time, but that's not the only thing that's happening. Households are borrowing a lot more on credit cards than they previously have. Take a look at this, this goes all the way back to April of 21. What do we get here? Credit card borrowing skyrocketing from this level here, sitting around the 20 threshold, skyrocketing to about 35.

So a massive explosion in the amount of credit card borrowing. But what I personally found very interesting was that first, we saw money from savings or from selling assets increase. but that actually has decreased here recently. potentially as people don't have any assets left to sell because the stock market, for example, has fallen so much or they've depleted their savings.

So now the rate of change for credit card borrowing is actually inflecting up at the same time as we're getting a down inflection in money from selling assets or savings. Because people are out people potentially out of savings, they have no stock left. Now, they're left with borrowing money from credit cards. And what's also interesting is even borrowing from friends or family.

The yellow line has started to Trend down, which somewhat implies that even friends or family are running out of money. That's also quite scary. But another another thing to consider is that total credit card spending. while it tends to decrease going into January and basically the end of December, you get a lot of spending going into these levels here, then you get a decrease.

It is still remarkable that the Green Line is still actually above 2019-20 and 2021. In other words, right here. that is your uh, season or your um, holiday spending right here for 2022 when it's higher than all of the previous levels. So people are taking hardship dispersals.

They're using their savings more, they're using their credit cards more, and they're potentially selling assets to continue financing the lifestyle that they've gotten used to after all the stimulus money that we've received over the last few years, and what's actually happening is people are just going into substantially more credit card debt to be able to do that. Now, what's really scary about that is we could potentially be walking into an era where we're maybe going to see credit delinquency rates jump as we go into a recessionary period. Well, we have a whole lot more credit card debt outstanding than we did in Prior years. In 2019, there was about a 4.19 trillion dollars of credit outstanding total outstanding credit.

Well, when you roll over to where we sit now, we're about 12 percent higher at 4.7 trillion and that number continues to rise this year. Now, what's scary about that is, if default rates go up, you actually end up having a larger set of defaulting than you would because the actual number is 12 percent higher. But if the default rate goes up, double what? The default rate is we're used to, we could see not only double the amount of money that's owed not repaid, but add another 12 percent to that and then double it because you have more outstanding than you did before the Pandemic in 2019. So we're setting up an environment where the middle class is really getting screwed.

Hardship withdrawals, more credit cards, spending more borrowing, higher default rates potentially coming as joblessness increases, people are taking more part-time jobs just to be able to survive. And here's my my advice because this is all pretty painful. As painful as it is when you go into a recession, it's really important in the best way possible unless you're going crazy and trying to start a startup in a recession. Okay, the best general advice: non-personal Financial Advice: Okay, non-personalized Okay, it's not like a consultation for your portfolio, but in my opinion, the best thing to do is focus on spending less money.

Really double down on that frugality during a recession. Which ironically actually makes recessions worse because if everybody spends less than you, create more of a recession. but you gotta look out for yourself. Work more.

Take that second job. Do that. Side hustle. Become that entrepreneur on the side next to your white collar job.

That way, if you lose your job, you got the side hustle. If you can maintain your job knock on wood that you do, you potentially have more income coming in from your side household. Maybe you're right able to write off more expenses. We talk about this in the Elite Hustlers university courses.

Hey, if you're employed, you should check out the Elite Hustler's course because now you have this potential of creating a side hustle and getting tax write-offs for having that side also that you otherwise would not have had. Invest, But invest slowly, right? Invest no more than you can afford to lose At this point, invest money that you can invest for the long term. Uh, consider things like Diversified ETFs especially actively managed ETFs which when they rebalance like say at one particular stock runs like you're investing in an ETF that has a lot of Tesla or Nvidia or apple exposure. let's say, and you really believe in those in the long term.

If those run, ordinarily, when you rebalance, you'd have to pay taxes. But if you invest in an actively managed ETF the ETF manager can exchange a stock that ran for multiple other stocks without passing on to capital gains. It's insane. So invest where you have a capital gains Advantage a tax advantage.

and personally, I think weight on real estate I Don't think there's a lot of enthusiasm right now for saying that you need to buy a house when mortgage rates are six and a half percent. Personally: I Think there's some conditions you should wait for when we talk about this in other videos, but you really want to wait for inflection points to line up that say the real estate market is in its bottoming process. We're not close. We're at the kind of part of the roller coaster where we kind of just started this part.

Okay, um, so we're not at that. You know we're at that. We're not at the oh part yet. Uh, so Bakala.

It's gonna be a bumpy ride. And really, the people who are getting screwed here are the middle and lower classes. Because guess what? When the stock market rebounds? guess who the first people are who are going to be totally fine. The Richer people, The people with more assets.

They're going to see their net worth Skyrocket again. and they're going to go right back to buying their Jets and doing whatever it is they do. But everybody else gets screwed so you want to be aware of this so that way you could be less screwed. It's painful Anyway, Thanks so much for watching.

We'll see in the next one. Goodbye.