'Imagine you are laid off’: Suze Orman likes these 3 dead simple techniques to help prepare your finances for a hotly anticipated recession this year

Jing Pan
·4 min read
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'Imagine you are laid off’: Suze Orman likes these 3 dead simple techniques to help prepare your finances for a hotly anticipated recession this year
'Imagine you are laid off’: Suze Orman likes these 3 dead simple techniques to help prepare your finances for a hotly anticipated recession this year
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While it may feel like you’ve been hearing there’s an economic downturn around the corner for ages, many economists now believe that this is the year the U.S. economy will tilt into recession.

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“We still expect a recession to unfold [in the second half of the year], but the confidence reading suggests the downturn could begin later in that window than earlier,” says Bloomberg economist Jonathan Church.

For her part, money maven Suze Orman says between the failures of Silicon Valley Bank and Signature Bank this spring and massive layoffs in the tech industry, the time is near.

“Because of what is happening with banks, it is obvious that a recession is more likely coming than not,” Orman told CNBC.com earlier this year.

Fortunately, the money maven herself has some tips and tricks on weathering whatever 2023 has to bring for your pocketbook.

Assume you are unemployed

The job market looks fine right now. According to the latest report from the Bureau of Labor Statistics, the U.S. economy added 209,000 jobs in June.

Moreover, the unemployment rate edged up slightly that month, but remains at an unchanged and reasonable 3.6%.

But Orman warns against complacency.

“If there is a recession, you better believe the same firms that are hiring now, will be looking to reduce their payroll,” she writes. “I think the best gift you can give yourself right now is to imagine you are laid off.”

In December 1969, the unemployment rate in the U.S. was an equally low 3.5%, yet an 11-month recession followed right afterward.

When you’re laid off, paychecks stop coming in. So Orman highly recommends building an emergency savings fund before the next crisis hits.

But a lot of people don't think about saving until after something happens — like losing your job.

"For 40 years, I've tried to change the mindset of people," Orman said in a 2022 interview with Moneywise.

"Usually, people have to hit rock bottom, before they make a change."

So how many months of financial cushion do you need?

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

Read more: 3 big mistakes people make with cash back credit cards that cost them every time they swipe

Eliminate your credit card debt

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

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

The reason? High interest rates.

The average credit card interest rate in America today is 24.24%, according to Lendingtree, which is the highest it’s been since the site began tracking rates in 2019. At that percentage, the compounding factor can make any unpaid credit card balance grow to dangerous levels very quickly.

Orman notes that carrying credit card debt right now is “asking for so much trouble” with interest rates on the 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 carrying an unpaid credit card balance.

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

Don’t spend it all

In an economy where the unemployment rate is low and with wages expected to increase by 4.6% this year, it would be easy to assume that people are piling money into their savings.

But that’s not the case.

According to a report from LendingClub, 6 in 10 Americans are living paycheck to paycheck.

Inflation is one reason why people are having trouble saving — nearly everything has gotten more expensive.

Orman has long advocated for having a robust emergency fund

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 lower your living costs — so the same financial cushion can last longer in the event that you lose your job.

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