Here’s How To Prepare Yourself for a Recession, According to Suze Orman
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If you follow the news, then you’ve likely heard a lot of discussion about the ups and downs of the market. Between reports of market fluctuations and increased prices for consumers, the pressure can feel overwhelming. Understandably, you may be anxious about how to handle a potential economic downturn.
Suze Orman understands how you feel. The author, podcast host, and renowned expert has been helping people like you make smart money decisions in good times and not-so-good times. And she has some advice: While you can’t control whether the economy takes an unfortunate turn, you can control how you prepare.
GOBankingRates spoke to Orman as part of our Top 100 Money Experts series about how to prepare yourself for market volatility, whenever it arrives.
Build Your Cash Fortress
If there’s one thing Orman wants you to know, it’s that being afraid without doing anything about it does you no good.
“Listen up — when recession clouds roll in, you need to own your financial future right now,” she said. “Fear is the main internal obstacle to wealth, and the best way to conquer fear is through action. So take action now.”
Bluntly put, Orman wants you to stop “messing around” and focus on financial warning signs like market dips, layoffs or credit tightening. If the tea leaves foretell an economic stormfront, it’s time to build a financial fortress that can protect you and your loved ones against the wild weather.
First, get ruthless about cutting nonessential expenses. Cancel subscriptions, watch out for daily splurges and halt discretionary spending. Instead, stockpile between eight to 12 months of expenses that you must pay on time — such as rent, utilities, groceries and insurance — in a high-yield savings or money market account.
“Use balance transfers to 0% APR credit cards — transfer existing high-interest balances, pay only the minimum due, and free up more cash flow,” she said. “Cash is your lifeline when everything else feels shaky. Don’t wait — fortify that fortress today.”
Just be sure to have a payoff plan before the promotional period ends and to factor in any transfer fees.
Don’t Panic (No, Really) — And Avoid Common Mistakes
The only way to weather a downturn is to stay disciplined. Orman advises you to stick to the fundamentals of good financial management: “Diversify, insure and keep debt under control.” If there’s one mistake she’s seen otherwise smart people make at the first whisper of a downturn, it’s utterly freaking out and forgetting those principles.
“When fear sets in, people do the dumbest things,” she said.
Some of those dumb things include panic-selling at the bottom and locking in losses. She’s also seen people punish their future selves by raiding their retirement savings early — taking on taxes and penalties while losing out on compound growth.
Another boneheaded move? Dropping your life, disability or health insurance to supposedly save money, which Orman likens to “driving without airbags.” While she’s at it, Orman also cautions you against overleveraging your home equity. “Cash-out refinances or HELOCs can leave you underwater if values slip,” she added.
Oh, and if, in your rush to get ahead of widespread financial misfortune, you come across an opportunity with yields that seem too good to be true — they probably are. Orman cautions that high-return schemes almost always hide massive fees or even outright scams. So, avoid them.
Establish Good Habits Today — No Matter What Tomorrow Brings
When it comes to preparing yourself for whatever the market may do, an ounce of prevention really is worth a pound of cure. That means building good financial habits that can serve you well regardless of the overall economic climate. “Remember: action crushes fear. Lock in these habits to stay calm and focused,” said Orman.
She wants you to start your day with a “money morning ritual,” where you spend three minutes reviewing balances, upcoming bills, and your cash reserve progress. While you’re doing this ritual with your morning coffee, you could also add another good habit Orman wants you to embrace: practicing gratitude. To overcome doom-and-gloom thinking, focus on what you have, like a steady paycheck, an emergency fund and your health. “Remind yourself what you have, not what you might lose,” she said.
Regardless of how terrifying the headlines and online chatter may be, there’s only so much you can control. Orman advises focusing on saving, budgeting, paying down debt and boosting your overall financial literacy — all “power moves” to maintain and improve your situation. When other people panic-sell, you’ll have the cash to buy quality stocks at a discount.
“Fear is your signal to act,” said Orman. “Take action now, and you’ll transform uncertainty into empowerment.”
Bottom Line
Hints of an economic downturn can be terrifying, but with this smart advice from Suze Orman, you can turn your fear into good habits and positive money mindsets that can help you get through any financial storm.
This article is part of GOBankingRates’ Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Have a question of your own? Share it on our hub — and you’ll be entered for a chance to win $500.
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