Suze Orman’s tips to shore up your financial situation in a recession

Highlights

• Individuals can find themselves in a precarious situation during inflationary times as financial management becomes especially harder.
• Suze Orman has listed some tips for households to manage finances during times of recession.
• Avoiding unnecessary expenditure, developing a stockpile of cash, and using dollar-cost averaging are some crucial tips shared by Suze Orman.

Economists and experts have repeatedly warned that a recession is lurking ahead for the US economy. This has rung alarm bells among investors and households alike, who are struggling to manage finances. Meanwhile, surging inflation and rising interest rates have clouded the outlook for most economies.

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Recessionary fears in the US have sparked concerns across the world as the American economy has a strong hold on the global economy. However, the impact of a recession in the US can have a deeper impact than that just on the economic growth of countries.

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As consumers and businesses fear an economic downturn, they are expected to reduce their expenditure on goods and services. This, in turn, could lower the aggregate demand in the economy and slow the existing momentum. This can cause severe damage to economic growth and increase unemployment in the economy.

As a result, households under stress could find it even harder to manage their funds. Here are a few tips shared by the financial expert Suze Orman that can help households keep their finances afloat during times of recession:

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Avoid unnecessary expenditure

The number one tip to removing financial strain is reducing all unnecessary expenditure. Those struggling to control their splurging habits should consider the fact that everything costs much more in times of inflation. Thus, it makes more economic sense to delay all unnecessary purchases for the time being.

It has been difficult to control the urge to spend as many economies have come out of the pandemic. This has further aggravated the demand for expensive purchases among households. Australian households who reserved savings over the lockdown period are now willing to spend. However, it seems wise for them to keep these savings intact amidst market uncertainty.

Invest using dollar-cost averaging

As per Suze Orman, individuals should not discontinue investing during times of economic uncertainty. Essential investments such as the monthly 401(k) contributions should not be discontinued even as financial conditions are under stress.

In fact, she suggests putting in the same amount of money each month and using a technique known as “dollar-cost averaging”. This includes investing a set amount of money in particular assets regularly over time, regardless of where the stock market is headed. However, those nearing retirement should be extremely careful while following this technique. If this money is needed elsewhere, it should not be put into these contributions.

Stockpiling is a good strategy

Suze Orman believes that stockpiling large amounts of cash can help develop a reserve for stressful times. This is part of the larger movement to ‘recession-proof’ oneself.

Some individuals might lose their jobs during a recession or find themselves looking for a new higher-paying job. This strategy can help them develop enough reserves to avoid depending on credit cards or ending up in debt.

Do not invest every penny earned

Orman further suggests investing only a part of one’s income is more practical. During inflationary times, people usually lose out a major chunk of their income in bad investments. Thus, it is imperative to maintain a stable balance between income and investments.

Do not panic

It is best to keep your composure even in times of distress. Orman says, “do not come from a place of fear”. Individuals should take charge of their own financial situation and work with whatever they have. Everyone has a unique financial situation, and it is okay to devise the best plan feasible accordingly.

Orman believes that it is important to feel empowered during tough times and continue working on your financial conditions.

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