- Suze Orman tells people to assume they will lose their jobs and plan accordingly.
- The financial guru suggests we need a year's worth of living expenses put aside just in case.
- She stresses the importance of paying down debt now as it's only going to get more expensive in the near future.
Any money you save now could help if times get tough.
While economists and politicians squabble about whether we are in a recession, financial gurus like Suze Orman say it is time to get ready, just in case. The host of the popular Women & Money podcast and co-founder of SecureSave.com is a great believer in hoping for the best and preparing for the worst. Here are the three main pieces of advice Suze Orman has for anyone who's worried about a recession.
1. Assume you will lose your job
Many experts suggest you put three to six months worth of living expenses aside in an emergency fund to cushion against the unexpected. This could include losing your job, a medical emergency, or something else that comes out of the blue and knocks you sideways. Orman goes even further: She suggests putting a year's worth of living expenses aside to recession proof your finances. If you're wondering how to calculate how much you might need, check out our emergency fund calculator.
Try to imagine what might happen if you go to work tomorrow and are told that the company is cutting 20% of its staff. How much money do you have put aside to cover bills and put food on the table? If you're living paycheck to paycheck and don't have even one month's worth of emergency savings, now's the time to start saving. That's easier said than done, but even $50 or $100 in your savings could give you a little breathing space. If you can pare back on any non-essential spending for a short period of time, your future self may be very grateful.
2. Pay off your credit card debt
The difficulty with an impending recession is that it comes hand in hand with higher interest rates. That means the cost of borrowing is only going to get higher. There are many people who want to cut loose after the struggles of the past few years and go on holiday or splurge on restaurant meals and new clothes. It's totally understandable. But if you're putting that spending on a credit card and can't afford to pay the balance at the end of the month, you're stacking up problems further down the line.
There are different strategies you can use to pay down debt. For example you might decide to focus on the debt with the biggest interest rate first, which may help you pay down the debt more quickly. Or you could focus on the smallest balance first to get the psychological boost from paying one card off completely. What matters most is that you make a plan and start dealing with your debt now as it will be even harder to handle once a recession hits.
3. Spend less than you earn
Living below your means is good advice in any economic situation, but even more so as the storm clouds of a potential recession darken our skies. If you don't already have an idea of how much you spend each month, sit down with a pen and paper or budgeting app and work it out. If you spend more than you earn each month -- or even find you're spending your entire paycheck and not putting anything aside -- it is time to take action. Look at areas where you can make cuts, or ways you can earn some extra cash now while employment rates are high.
Orman stresses that this is a time to focus on what you need, not what you want. She warns that the government is unlikely to help out in the coming months as it did during the pandemic. "This time, the government isn't going to save you," she told Yahoo! Finance. "You're going to have to save yourself." Orman points out that even if we don't go into a recession, the impact of high gas prices and increasing living costs mean many people are already struggling.
We may be able to avoid the worst case scenarios. Perhaps we won't hit a serious recession. Perhaps you’ll keep your job. Even so, there's no harm in having a solid financial foundation. It's a win-win. If the economy shrinks and people get laid off, you'll be well-positioned to survive the crisis. If it doesn't, you'll have money put aside for other financial emergencies and won't be carrying high interest debt. As Orman says in her blog, every dollar you don't spend now is money that can help you when things get tough further down the road.
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