- Today's economic conditions are challenging on many levels.
- Financial expert Suze Orman has some solid advice on how to navigate these tricky times.
- Cutting back on spending and rethinking your emergency fund could go a long way to improving your financial situation.
It pays to take these to heart.
Two years ago, the U.S. economy was in obviously bad shape. Unemployment was rampant, small businesses were shuttered across the country, and stocks were trying to wiggle their way out of a recent plunge.
Fast forward to the present, and things look a bit different. Not only are jobs abundant, but many companies are desperate to hire, so much so that they're throwing higher wages at workers in an attempt to lure them in.
But while the jobless rate is considerably lower now than it was two years ago, many Americans are in a comparable position financially where they're struggling to keep up with their bills. Now, instead of being held back by unemployment, consumers are having difficulty managing their rising living costs. And while we've seen a decent amount of wage growth since the start of the pandemic, at this point, even workers whose income has increased are unable to keep up with inflation.
Compounding the issue right now is a months-long period of stock market volatility and a recent pronounced plunge that briefly sent the S&P 500 index into bear market territory, marking a 20% decline. The S&P 500 is generally considered an indicator of how the stock market is doing on a whole. And these days, that can be summed up as "not well."
Not only are stocks down while living costs are up, but many financial experts are warning that a recession is imminent. And financial guru Suze Orman concurs. In a recent podcast, Orman said that she expects a recession to hit later this year or in early 2023. And in light of that, here are three key money moves she'd advise everyone to make right now.
1. Cut back on spending
Many people are raiding their savings and racking up costly debt to keep up with inflation. But that's a move that could cause consumers a world of hurt if a recession strikes.
During a recession, layoffs can be rampant, and so you need as much savings as you can get to tide yourself over in the event of job loss. As such, the last thing you should be doing now is dipping into your savings to cover your bills. Instead, Orman says now's the time to cut back on spending to conserve funds. Look through your expenses and figure out which ones you can spend less on -- even if that means making some near-term sacrifices.
2. Rethink your emergency fund
Many people have emergency savings to cope with unexpected bills or periods of financial upheaval, like a layoff. Orman says having up to a year's worth of living expenses in the bank is a smart move. But you may have initially calculated your emergency fund based on what your bills were costing you a year ago.
Since living costs are up so substantially right now, a new calculation may be in order. And based on that, you may need to start making an effort to add to your emergency fund in case your personal financial situation worsens in the near term.
3. Find a high-yield savings account to store your built-up cash
It's never a good idea to invest money you might need within a few years. And your emergency fund falls into that category.
Still, it pays to earn as much interest on your money as possible, so to that end, Orman says to do your research and find a savings account that gives you a generous rate on your money. Even though savings account rates aren't much to write home about these days, there are some better options out there
We're dealing with tough economic times, despite the fact that unemployment rates are low. And because we don't know how soon a recession will hit, it's best to do as much as possible to be prepared. It's wise to take Orman's advice to heart and rethink your spending, shore up your savings, and find a good home for your money. That should give you more peace of mind at a time when the threat of a recession looms.
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