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While economists and politicians bicker over whether we’re in a recession, financial gurus like Suze Orman says it’s time to prepare, just in case. The host of the popular women and money podcast and co-founder of SecureSave.com is a firm believer in hoping for the best and preparing for the worst. Here are the top three tips Suze Orman has for anyone worried about a recession.
1. Assume you will lose your job
Many experts suggest setting aside three to six months of living expenses in an emergency fund to protect against the unexpected. This could include the loss of your job, a medical emergency, or something else that happens out of the blue and knocks you sideways. Orman goes even further: she suggests setting aside a year of living expenses to protect your finances against the recession. 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 workforce. How much money have you set aside to cover bills and put food on the table? If you live paycheck to paycheck and don’t have even a month of emergency savings, now is the time to start saving. It’s easier said than done, but even $50 or $100 in savings might give you some breathing room. If you can cut back on your non-essential expenses for a short time, your future self might be very grateful.
2. Pay off your credit card debt
The difficulty with an impending recession is that it comes with higher interest rates. This means that the cost of borrowing will only increase. There are plenty of people who want to let go after the struggles of the past few years and go on vacation or splurge on restaurant meals and new clothes. This is quite understandable. But if you put those expenses on a credit card and can’t afford to pay the balance at the end of the month, you pile up the problems later.
There are different strategies you can use to pay off your debts. For example, you might decide to focus on the debt with the highest interest rate first, which can help you pay off the debt faster. Or you can focus on the smaller balance first to get the psychological boost of paying off a card completely. What matters most is that you make a plan and start dealing with your debt now, because it will be even harder to manage 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 clouds of a possible recession darken our skies. If you don’t yet have an idea of how much you spend each month, sit down with a pen and paper or a budgeting app and calculate it. If you’re spending more than you earn each month — or even find that you’re spending all of your paycheck and not saving anything — it’s time to take action. Look at areas where you can make cuts or ways to make extra money now that employment rates are high.
Orman stresses that now is the time to focus on what you need, not what you want. She warns the government is unlikely to help in the coming months as it has done during the pandemic. “This time the government is not going to save you,” she told Yahoo! Finance. “You’ll have to work it out on your own.” Orman points out that even if we don’t enter a recession, the impact of high gas prices and the rising cost of living means that many people are already struggling.
At the end of the line
We can perhaps avoid the worst scenarios. Maybe we won’t have a severe recession. Maybe you’ll keep your job. Even so, there is no harm in having a solid financial base. It’s a win-win. If the economy shrinks and people are laid off, you will be in a good position to survive the crisis. If not, you’ll have money set aside for other financial emergencies and you won’t have high-interest debt. As Orman says in his blog, every dollar you don’t spend now is money that can help you when the going gets tough later.
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