Suze Orman has 3 time-tested ways to prepare your finances ahead of your next emergency amid a 2023 recession

TECHNOLOGY
featured image

'For 40 years, I've tried to change people's mindsets.': Suze Orman has 3 time-tested ways to prepare your finances ahead of your next emergency amid a 2023 recession

‘For 40 years, I’ve tried to change people’s mindsets.’: Suze Orman has 3 time-tested ways to prepare your finances ahead of your next emergency amid a 2023 recession

The word recession is still on economists’ lips as we move into 2023. The latest GDP report showed the US economy rebounded by 2.6% in the third quarter after falling in the first and second quarters of this year.

Despite that, experts say there’s a 70% chance the US will slip into a recession in 2023, according to a December Bloomberg poll.

Personal finance expert Suze Orman joined the chorus during a September episode of her Women & Money podcast, predicting a recession in “early 2023.”

She recently sat down with Moneywise to talk about the risks of not being prepared for a financial emergency.

On the positive side, Orman has suggestions for proactive ways to prepare for a recession in the new year.

WATCH NOW: Full 30-minute Q&A with Suze Orman and Devin Miller of SecureSave on the importance of emergency savings accounts

don’t miss

Suppose you are unemployed

The job market looks good right now. According to the latest report by the Bureau of Labor Statistics, the US economy created 263,000 jobs in November.

Furthermore, the unemployment rate is holding steady at 3.7%.

But Orman warns against complacency.

“If there is a recession, you best believe the same companies that are hiring now will be looking to cut their payroll,” she writes. “I think the best gift you can give yourself right now is to imagine you’ve been fired.”

In December 1969, the US unemployment rate was a similarly low 3.5%, but an 11-month recession ensued soon after.

When you’re fired, the paychecks stop coming. So Orman strongly recommends creating an emergency savings fund before your next crisis hits.

But many people don’t think about saving until something happens – like losing their job.

“For 40 years, I’ve tried to change people’s mindsets,” Orman said in a recent interview with Moneywise.

“Usually people have to hit rock bottom before making a change.”

So 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 an unlikely goal, focus on saving as much money as possible-one month at a time.

Eliminate credit card debt

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

For those who have an unpaid balance on their credit cards, debt can increase dramatically during a recession.

The reason? High interest rates.

See more information: Top 10 Investing Apps for Once-in-a-Generation Opportunities (Even If You’re a Beginner)

The average credit card interest rate in the United States today is 22.91%, according to Lendingtree. At this rate, the compounding factor can cause any unpaid credit card balance to grow to dangerous levels very quickly.

Orman notes that carrying credit card debt right now is “looking for a lot of trouble” as interest rates are rising.

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

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

“If I owed any money at 18%, the first thing I would do with any money I had is pay it back,” Buffett said in 2020. “You can’t go through life borrowing money at those rates and be better.”

don’t spend it all

In an economy where the unemployment rate is low and wages are expected to rise by 4.6% next year, it would be easy to assume that people are hoarding cash in their savings.

But this is not the case.

According to a recent report by LendingClub, 6 out of 10 Americans live paycheck to paycheck.

Inflation is one of the reasons people are having trouble saving – just about everything has gotten more expensive.

In a recent interview with Moneywise, Orman emphasized the importance of having an emergency fund set aside.

“It’s not unlikely that by April of next year the Fed funds rate will be very close to 5%, which means that credit card interest rates could go up a lot,” says Orman.

By spending less than you earn, you can build up your emergency savings faster. And by getting used to a more frugal lifestyle, you can reduce your living costs – so that same financial protection can last longer if you lose your job.

WATCH NOW: Suze Orman tells a cautionary tale about what happens when you can’t cover your next financial emergency

What to read next

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

Tags