Suze Orman is sounding the alarm on a looming “financial pandemic” as Americans eclipse $1 trillion in total credit card debt. She worries that many households won’t be able to keep up with their payments and that the government won’t bail them out.
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That means if you have debt, Orman says you’ll need to take matters into your own hands to stay financially solvent. You’ll learn how to do that below.
A Financial Pandemic
Many Americans increased their savings during COVID-19 through stimulus checks and less spending. But since then, about 80% of households have run out of their pandemic savings. This is the starting point for Orman’s prediction of a pending financial pandemic.
The popular financial adviser notes that credit card debt is going up while savings continue to decline. She fears this will lead to a wave of bankruptcies and foreclosures as it becomes increasingly difficult for households to make their payments.
However, Orman doesn’t expect the government to come to the rescue as it did during COVID-19. She says American households will need to make their own “financial vaccines” to come out unscathed.
Orman’s Tips for Preparing
We may be heading for a financial pandemic, but you don’t have to let it derail your goals. Orman offers three tips to get yourself ready for whatever the future may bring.
Build Emergency Savings Automatically With Your Employer If Possible
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In her interview on this subject with CNN, Orman says people should start by seeing if their employer has any programs in place for supporting saving. She says some companies will automatically set aside the same amount of money from every paycheck and put it into a savings account for you. But this may not be an option for you.
Save 8-12 Months of Expenses in a Separate Account
Next, Orman recommends setting aside eight to 12 months of expenses in a separate savings account. This is a bit more than the average recommendation, which says to save between three and six months of expenses.
Orman is probably recommending accumulating extra savings because of the financial pandemic she expects. However, the exact amount of emergency funds you reserve can vary based on how much you have available to save.
Contribute to Your Retirement To Earn Employer Matching
Finally, Orman says you should always contribute enough to your retirement account to qualify for the maximum amount of matching your employer offers. Failing to do this is like passing up free money, she said.
Other Strategies for Improving Your Financial Wellness
In the interview, Orman doesn’t share every strategy that can help you prepare for the financial pandemic she predicts. But anything that improves your financial wellness can be helpful. Here are some strategies to consider.
Track Your Spending
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There’s a common saying that you need to track something before you can improve it. That’s absolutely true for your financial situation, which is why any plan for moving forward should include tracking your spending.
You can do that by going through your transaction history and grouping purchases into different categories like food and housing. Or, it may be easier to just download a budgeting app that can do it for you after you connect your bank account digitally.
Create a Realistic Monthly Budget
It’s also important to have a monthly budget in place. Yours should include all of your major expense categories and the dollar amount you expect to spend on them each month. The total should add up to no more than your monthly income and hopefully less so you have room to save.
Pay Your Bills on Time
If you’re not in a good financial position, don’t let yourself fall behind on present-day obligations. You’ll need to spend as much of your budget as it takes to pay your bills. Otherwise, it’ll just become harder and harder to get yourself out of the hole.
If you don’t have enough income to pay your bills, reach out to the companies you owe money to. Some may be willing to pause or reduce your payments due to financial difficulty.
Pay in Cash When Possible
Next, put a stop to new debt by paying cash whenever you can. It’s OK if that means you can’t save as much or make as much progress on existing debt. If Orman’s financial pandemic comes, you’ll want to be spending as little on debt and interest payments per month as possible. This strategy helps you do that.
If paying cash isn’t an option, consider choosing a shorter loan term. This will at least get the debt paid off faster so that it stops taking up room in your monthly budget.
Follow an Investment Strategy
Finally, you may still have extra cash available after building an emergency fund and taking care of your monthly obligations. If so, use that capital to follow an investment strategy for your future.
You can put money in a retirement account like an IRA, purchase certificates of deposit or save through a high-yield savings account for an important upcoming purchase, like a home.
Just know that some account types restrict when you can withdraw the money you put in them. For example, IRAs typically charge a 10% withdrawal penalty if you remove money before turning 59 ½. Don’t put money in an account like this if you think you’ll need it sooner than that.
The Final Word
Orman is predicting a new wave of financial challenges for American households. But she’s not an oracle. The truth is none of us know when the next difficult financial times will arrive. That’s why it’s important to always be thinking about how to use your money more effectively. GOBankingRates makes that easier to do with a variety of free financial guides, analyses and emerging news.
