7 handy tips to help recession-proof your finances

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7 handy tips to help recession-proof your finances

As UK economic activity contracted at its fastest pace in nearly two years in October, it would suggest that the UK has fallen into a recession.

Worryingly, the Bank of England (BoE) also believes that the UK may remain in a recession for the longest period since records began.

The next few months and years could be challenging, so here are seven useful tips that could help you cope financially.

1. Try to reduce your debt

High-interest debt – like credit card debt – can be especially difficult to manage when money is tight. Interest charges can pile up quickly, especially when interest rates are rising.

If you have multiple debts, try to focus on reducing the ones with the highest interest rates first. This could save you money, especially with seemingly ever-increasing interest rates.

Another possibility could be to transfer your debts to a credit card with 0% interest on balance transfers. This could enable you to clear some of the debt while benefiting from a period where you pay no interest.

Even if you can’t reduce your debts significantly, consolidating all your debts into one place could be beneficial to you. You will only have to pay interest on one sum of money and having just one debt to handle could be easier to manage.

2. Have an emergency fund

With the cost of goods and services rising, it is a good idea to build up an emergency fund.

This is a fund that you can draw on in the event of unexpected expenses, such as a broken boiler, leaky roof, or period of unemployment. You should aim to keep between three and six months’ worth of expenses in an easy access account.

3. Earn an extra income

Now could be the ideal opportunity to look at ways of generating some extra income. This could help you to pay your rising bills, repay debts, or to boost your savings or emergency fund.

Many people also have side hustles, where they produce a product or get paid for services.

Recent research by Aviva shows that 19% of adults in the UK have started a side hustle since March 2020, 63% of those are still active in them today. That means there are 6.49 million people in the UK with a side hustle.

For many people, side hustles start as hobbies, such as art and photography, and so can be quite lucrative. The average earnings from a side hustle are £497 a month but over 28% earn more than £500.

4. Protect your retirement

When times are difficult and finances are tight, many people prioritise other expenses over their pension contributions.

Indeed, Forbes has reported a 2.8% increase in people opting out of their workplace pensions since 2020.

It is easy to forget that your pension is a great and tax-efficient way to save and is a vital part of your financial plan. Even if you only opt out during a period of financial hardship, you would be surprised by how much you would miss out on in terms of contributions from your employer, tax relief, and investment growth.

For instance, according to the data published by the Guardian, if a 20-year-old who contributes £200 a month to their pension then decided to stop paying for three years, the value of their final pension pot would drop by £28,000. This assumes they retire at 67 and a 5% annual growth rate.

5. Check your insurance

During this time of financial uncertainty, it’s important to ensure you and your family are protected. If something was to happen to you or you become unable to work due to illness or injury, having insurance can provide vital financial support.

Ensuring you have income protection or critical illness cover can provide a lifeline for you and your family if you were unable to work for an extended period due to illness or injury.

Additionally, making sure you have life insurance, so your family could repay your mortgage and pay their regular commitments in this difficult time, will give you peace of mind.

6. Investing could be a good option

If you have built up an emergency fund, and you feel financially stable, investing your money could be a good option for you.

While investing in a recession may sound counterintuitive, you could benefit from buying shares and fund units at a discounted price. As and when markets recover, this could give your wealth the potential for growth.

Drip-feeding your savings by investing regularly can be a useful way of smoothing out volatility in the stock market – and we can help you to put a plan in place.

We can help you to build a diversified and tax-efficient portfolio aligned with your tolerance for risk that will enable you to work towards your long-term goals.

7. Seek advice from a professional

One of the hardest parts of a recession is not knowing what comes next, and when things will get better. That’s why it’s important to be clear about where you stand financially.

Talking to a financial planner at this point may be a good idea, especially if you have specific financial goals you would like to meet in the future.

You could also talk to a mortgage broker to discuss whether switching to a fixed-rate mortgage would better protect you from further interest rate rises. If you are unable to switch, ensure you have money set aside to prepare yourself for higher monthly payments.

Get in touch

Heading into a recession can be a worrying time and you may have concerns about your financial stability. If you would like further guidance or advice on what steps could benefit you during this difficult time, please get in touch.

Email us at office@verve-financial.com or call 0330 320 5048.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

Posted 11/11/2022

This item was correct at the time of writing and the information contained may no longer be up to date.

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