Suze Orman likes these 3 simple techniques to prepare for the coming recession

‘Let’s say you’re fired’: Suze Orman likes these 3 simple techniques to prepare for the next recession

The word recession is making headlines these days. The most recent GDP report showed that the US economy shrank 0.9% in the second quarter — and that’s after GDP contracted 1.6% in the first quarter.

The textbook definition of a recession is a fall in GDP for two consecutive quarters. While some politicians refuse to call it a recession, many economic experts are sounding the alarm.

Suze Orman, for example, says the Fed’s aggressive rate hikes could “make it harder for businesses to finance their operations and for consumers to consume.”

“Higher car loan rates, mortgage rates, and credit card rates go against spending,” the TV personality explains.

On the bright side, Orman also suggests several proactive ways to prepare for a recession. Let’s take a look.

Dont miss

Assume you are unemployed

The job market looks fine right now. According to the latest report from the Bureau of Labor Statistics, the US economy added 528,000 jobs in July, beating economists’ expectations for 258,000.

In addition, the unemployment rate fell to 3.5%, reaching a decade low.

But Orman cautions against complacency.

“If there’s a recession, you better believe the same companies that are hiring now will try to cut their payroll,” he writes. “I think the best gift you can give yourself right now is to imagine you’re fired.”

In December 1969, the US unemployment rate was an equally low 3.5%, yet an 11-month recession followed soon after.

When you get laid off, the paychecks stop coming. So Orman strongly recommends building an emergency fund.

How many months of financial cushion do you need?

Orman suggests having enough savings to help cover your expenses for a year. If that seems like a far-fetched goal, just focus on saving as much as possible – one month at a time.

Eliminate your credit card debt

Credit cards are a great invention — for companies that offer you credit cards.

For those with unpaid balances on their credit cards, debt could increase dramatically during a recession.

The reason? High interest rates.

The average credit card interest rate rose to just over 21% in July 2022. At this rate, the compounding factor can cause any unpaid credit card balance to rise to dangerous levels very quickly.

Orman notes that carrying credit card debt right now “takes so much work” as interest rates rise.

She’s not the only expert who believes you should get rid of credit card debt altogether.

Legendary investor Warren Buffett has also warned about the danger of having an unpaid credit card balance.

“If I owed money at 18%, the first thing I would do with whatever money I had would be to pay it back,” Buffett said in 2020. “You can’t spend your whole life borrowing money at those rates and be better off .”

Don’t spend it all

In an economy where unemployment is low and wages are rising, it would be easy to assume that people are hoarding money in their savings.

But it is not so.

According to a recent report from LendingClub, 61% of Americans live paycheck to paycheck.

Inflation is one reason people find it hard to save – almost everything has become more expensive. Another reason is the existence of unsatisfied needs.

Orman emphasizes the importance of living below your means. In fact, she says it’s the best advice she has for her readers right now.

By spending less than you earn, you can grow your emergency savings faster. And by getting used to a more frugal lifestyle, you can lower your living costs — so that same financial cushion can last longer in the event you lose your job.

“A dollar not spent is another dollar you can add to your emergency savings or use to reduce your credit card debt,” he concludes.

What to read next

  • Subscribe to our MoneyWise investment newsletter to receive a steady stream of ideas from Wall Street’s top firms.

  • If your retirement plans have been blown away by inflation, here’s a stress-free way to get back on track

  • “There’s always a bull market somewhere”: Jim Cramer’s famous words suggest that you can make money no matter what. Here are 2 strong tailwinds to take advantage of today

This article provides information only and should not be construed as advice. Provided without warranty of any kind.

Leave a Reply

Your email address will not be published. Required fields are marked *