We want to know if a recession is coming. It’s the wrong question

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I don’t know if Australia is heading towards a recession. But I do know that financial security has very little to do with impressing the people around you.

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This week, someone asked me a question on my podcast that has stuck with me. Should Australians be preparing for a recession?

I can understand why they’re asking. Interest rates have been rising, inflation is proving stubborn and the economic headlines haven’t been reassuring. It feels like every other week there’s another economist warning us about what might be around the corner.

I follow these conversations closely. It’s my job, after all. But I sometimes wonder whether we’re so focused on predicting what the economy will do next that we’re overlooking something much closer to home.

After years working as a financial adviser and now in mortgage broking, my understanding of what it means to be wealthy has changed quite a bit. Early in my career, I probably would have measured wealth in the traditional sense.

How much someone earned, what their home was worth, how much they’d accumulated in investments. All perfectly reasonable measures, and ones that still matter. But having spent years looking at people’s finances behind closed doors, I’ve realised those numbers can tell you surprisingly little about how financially secure someone actually is.

Some of the most eye-opening clients I worked with were households earning $600,000, sometimes upwards of $1 million a year. On paper, they were doing extraordinarily well. They owned beautiful homes, drove expensive cars and had the sorts of careers most people would consider incredibly successful.

Yet when we sat down and went through their finances, the reality was sometimes quite different. These clients’ mortgages were enormous, their spending had grown alongside their incomes and there was little room for anything to go wrong. Some had accumulated substantial assets but had surprisingly little put aside for retirement.

Others were so dependent on maintaining their current incomes that even a relatively short interruption could have…

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