A “perfect storm” is headed our way, warns personal finance guru and author Suze Orman. She also says it will be worse than the Great Recession.
The Great Recession resulted from the subprime mortgage crisis that bled over into our nation’s financial system. However, a health crisis caused this one, she said. She further states that it is “50,000 times worse, in my opinion, because there’s no direction.”
An Effect of the Pandemic
Also unlike 2008, the entire country needed to shut down due to the coronavirus pandemic. It caused millions of businesses to close at least temporarily. Many of the closed businesses simply won’t reopen. It left former employees without a job.
This has led to nearly 40 million Americans filing for unemployment benefits since the pandemic began. With this, Orman worries that many of those jobs simply won’t be coming back even when the worst of the outbreak passes.
“We have Covid ramping up, which means in many states and cities and counties, jobs are not going to be coming back,” Orman said.
It’s a cold reality for millions of unemployed Americans, whether their jobs were in the restaurants, hotels, or other vulnerable industries. However, the finance guru says, “Stop thinking that your job is going to come back. It may, but many of them may not.”
Fortunately, the Republicans just proposed a new stimulus bill that will continue to provide enhanced unemployment benefits. They will also provide other measures to help the economy rebound.
If you find yourself unemployed, there are specific things you can do to improve your chances of emerging from this pandemic financially – if not emotionally – unscathed.
Orman says the first step you must take is to limit your spending as much as possible.
After you pay your necessary bills, any additional money left over, either from a paycheck, stimulus check or unemployment, should be placed into an emergency fund. Orman says to contribute to an emergency savings account until you have eight months of expenses saved.
A Counter-Intuitive Step to Take
The next step from Orman is counter-intuitive.
“Charge everything that you can on a credit card,” she said. “Start with the lowest interest credit card that you have, and pay the minimum payment due.”
This step, while unexpected from a personal finance expert, is to ensure you keep as much of your money as possible in the bank. Interest rates are incredibly low, so the minimum required payment on credit cards shouldn’t be a financial burden.
Orman also advises having a backup income plan should things change. Either freelance work or a secondary source of income could be critical if your primary source of income sours.
She warns against taking money out of your 401(k) or IRA to make ends meet. The CARES Act allows you to withdraw up to $100,000 without penalty if you pay it back within three years. However, there’s a penalty if you aren’t able to repay the loan in that time.
Most importantly, the finance guru says “Just be very careful where you go and what you do.”