Worried About a Recession? Consider Following These Suze Orman Tips

Following this financial guru's advice could help you prepare for an economic downturn. 

When poor economic conditions, including a negative gross domestic product, exist for months on end, it’s classified as a recession. Many experts are concerned a recession will soon occur in the U.S. because of surging inflation, rising interest rates, and other worrying indicators. 

Unsurprisingly, an economic downturn like a recession can have an adverse impact on your finances. But finance expert Suze Orman has some tips for shoring up your financial situation during this type of difficult economic climate. Here's what Orman recommends. 

Start stockpiling money 

Orman says the best way to get yourself ready for a recession is to start stockpiling money so you can build large cash reserves to see you through troubled economic times. 

"Think about it as an economic pandemic, where you don't spend, you don't go out, unless you have the money to do so," Orman advised. She warned that because most items are becoming more expensive, it's especially important to "recession-proof" yourself by saving as much as you can.  

If you follow this advice, you can avoid putting purchases on a credit card or otherwise ending up in debt if your income falls during the recession or if you're faced with higher prices. 

Limit unnecessary spending 

Cutting back on spending is another key tip Orman has offered. "If you are really worried about a recession, because in fact it's going to affect you in every possible way, then you have to cut back now. That's the greatest tip I could give you," Orman said.

To help you reduce spending, she recommends asking yourself whether each purchase you are considering is a need or a want before moving forward with it. That's especially true if you don't have a lot of money saved already. 

"You really should only be spending your money right now on staples, things that you need," according to Orman. 

Keep investing using dollar-cost averaging

Orman has warned against jeopardizing your retirement by discontinuing investing during tough economic conditions. "Every month that you put your money into your 401(k), just continue to do it," she said, warning, "don't take your money out of the market."

For those with a long time left until they leave the workforce, she urges continuing to invest the same amount you normally do and using a technique called "dollar-cost averaging." This involves investing a set amount in particular assets regularly over time regardless of what the stock market is doing. With this technique, you'll usually buy more assets when the price is low. 

For those closer to retirement, however, Orman also cautions that it's not a good idea to have money invested that you will need to rely on soon because you don't have time to wait for a recovery after a downturn. "If you're near retirement, you better be really careful here," Orman warned. "Remember, you cannot have money in the market that you're going to need within five years."

Avoid panic

Finally, Orman urges people not to act based on fear even if economic times seem tough. Instead, she believes that it's best to make empowered financial decisions that will help see you through the bad times and set you up for more security in the long run.