Any money you save now can help when times get tough.
- Suze Orman tells people to anticipate losing their job and plan accordingly.
- Financial gurus suggest we set aside a year’s worth of living expenses.
- He emphasizes the importance of paying off debt now because it will become more expensive in the near future.
As economists and politicians argue over whether we’re in a recession, economic gurus love it ,style=”text-decoration: underline”>Suze Orman says it’s time to get ready. A popular host Women and money The podcast and co-founder of SecureSave.com is a firm believer in hoping for the best and preparing for the worst. Here are Suze Orman’s three top tips for anyone worried about the recession.
1. Imagine you lose your job
Many experts advise setting aside three to six months’ worth of living expenses in an emergency fund to cushion against the unexpected. This could include losing your job, a medical emergency, or something out of the blue that pushes you aside. Orman goes even further: She suggests setting aside a year’s worth of living expenses to recession-proof your finances. If you’re wondering how to figure out how much you need, check out our Emergency fund calculator.
Try to imagine what would happen if you went to work tomorrow and were told that the company was cutting 20% of its staff. How much money did you put down to cover the bills and put food on the table? If you’re living paycheck to paycheck and don’t have a month’s worth of emergency savings, now is the time to start saving. It’s easier said than done, but even $50 or even $100 in your savings can give you some breathing room. If you cut back on any non-essential expenses in the short term, your prospects will be very grateful.
2. Pay off your credit card debt
The downside of an impending recession comes hand in hand with higher interest rates. That means the cost of borrowing will only increase. After the struggle of the past few years there are many people who want to relax and go on vacation or splurge on restaurant meals and new clothes. This is completely understandable. But if you’re putting those expenses on a credit card and can’t pay off the balance at the end of the month, you’re just compounding the problem further down the line.
There are various strategies you can use to pay off debt. For example you may decide to focus on the loan with the highest interest rate first, which will help you pay off the loan faster. Or you can focus on smaller balances first to get a mental boost from paying off one card in full. The most important thing is that you make a plan and start dealing with your debt now because the recession hit will make it even harder to cope.
3. Spend less than you earn
Living below your means is good advice in any financial situation, but even more so with potential recessionary clouds darkening our skies. If you don’t already have an idea of how much you spend each month, sit down with pen and paper or a budget app and work it out. If you’re spending more than you earn each month — or you’re spending your entire paycheck and not putting anything aside — it’s time to take action. Look at areas where you can cut back, or ways you can make some extra money now that employment rates are high.
Orman emphasizes that it’s time to focus on what you want, not what you want. He warned that the government is unlikely to help in the coming months as it did during the pandemic. “This time, the government is not going to save you,” he told Yahoo! Finance. “You have to save yourself.” Orman points out that even if we’re not headed into a recession, many people are already struggling as a result of high gas prices and rising costs of living.
The bottom line
We may be able to avoid worst-case scenarios. Maybe we won’t face a serious recession. Maybe you’ll keep your job. Even so, there is no harm in having a solid financial foundation. It’s a win-win. If the economy shrinks and people are laid off, you’ll be in a better position to survive the crisis. If it doesn’t, you’ll be putting money aside for other financial emergencies and not having high-interest debt. As Orman says on his blog, every dollar you don’t spend now is money that will help you when things get tougher down the road.
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