Suze Orman's Advice for Preparing for Hard Times: 'Assume You Are Laid Off'
- There's talk that a recession could deal the U.S. economy a near-term blow.
- Financial expert Suze Orman says that while the labor market is strong now, it's best to go through the motions of losing a job.
- This will help you decide what steps you need to take to improve your financial picture in case you are laid off.
It's advice worth following.
Will a recession batter the U.S. economy later on this year or early next? There's reason to believe things could take a turn for the worse.
For months on end, Americans have been struggling to cover living costs in the wake of rampant inflation. In an effort to bring the cost of living down, the Federal Reserve is implementing interest rate hikes, which are apt to make borrowing money in the form of credit cards, personal loans, and HELOCs more expensive.
The logic in going this route is to make it harder and less appealing for consumers to borrow money, so that they curb their spending and thereby make it possible for supply to catch up to demand. But the fear is that if the Fed goes overboard, it could lead to a drastic pullback in consumer spending that fuels a full-fledged economic downturn.
If you're worried about a recession, you're definitely not alone. But financial guru Suze Orman has some great advice on how to best prepare for one.
Assume you're laid off
Right now, the national unemployment rate is low, and the labor market is filled with available jobs. But if a recession hits, things could change quickly. Rather than hire, companies might try to downsize their staff, leading to widespread layoffs.
That's why Orman says that now's a good time to go through the exercise of pretending you're laid off. She says you should imagine you've lost your job, and from there, assess your financial situation.
Do you have enough money in your savings account to pay your bills for a few months while you look for work? You should, ideally, have enough cash to cover at least three months of living costs.
Are there expenses in your budget you can trim to minimize your spending while you're out of a job? It may be a good time to cancel cable or stop ordering takeout frequently, since it tends to cost a lot more than buying groceries at the supermarket.
Are there steps you can take to drum up income, whether it's selling things you don't need or taking on gig work until a full-time opportunity arises? These are the motions you should be going through now, while you actually do have a job. If you see, for example, that your emergency fund isn't as robust as it should be, you'll have an opportunity to boost it before the economy takes a turn for the worse.
Hope for the best, but expect the opposite
Assuming you'll get laid off in the course of a recession doesn't make you a pessimist. Rather, it makes you a cautious person who wants to plan for long-term financial upheaval.
While it's true that you may come out of our next recession fully unscathed, and you might manage to hang onto your job even if unemployment levels rise within your industry or company, you can't assume you'll be that fortunate. Instead, assume your job will disappear during a recession, and make sure you're equipped to handle that possibility -- both financially and mentally.
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