- July 27, 2022
- Posted by: Rob
- Category: Economics & Financial Planning
A recession in the UK economy seems inevitable, but there are steps you can take with your finances to avoid the worst.
Thursday 28 July 2022 Author: Owen Foulkes
With every passing day, it feels like a recession in the UK economy becomes increasingly certain. If the UK is headed for recession people need to get their finances into shape, cut outgoings and try to save as much as possible while they can.
Many people are worried that the economic impact of the coronavirus, higher energy and food costs, and the impact of Brexit will drag the UK into recession. There is no way of knowing how severe any recession may be, there are four key ways in which you can prepare for any economic downturn.
Ditch The Debt
If you are one of the fortunate few with either surplus cash or surplus income, your first port of call should be to pay down debt, starting with the highest interest debt (such as credit cards) first.
If you do not have the surplus cash to pay down debt, then you should look at moving debt to providers with lower interest rates. If you have relatively good credit, you may be able to get a 0% balance transfer credit card, meaning your entire repayment goes to paying down capital rather than paying the interest.
You could also consider a low-cost personal loan, with many providers still offering loans at below 3% interest.
For those in more financial difficulty, it is always worth speaking to your lender in the first instance to discuss lowering interest rates, repayment holidays or term extensions.
Save For A Rainy Day
Once the debts have been dealt with, you should look to build up an emergency pot of cash that you can fall back on, should you lose your job, see your income cut or face any unexpected costs. The fact that one in ten adults have no savings at all, and 41% of the population do not have enough savings to last 1 month without wages, shows how financially exposed many people are.
The general rule of thumb is to try to hold 6 months’ worth for outgoings, so have a look at what your household spending is each month and multiply this by six. If this seems like too much, just remember that having any level of savings is better than nothing. The emergency fund should be held in an easy access savings account.
Expel Some Expenses
Lifestyle creep is a term used to describe the ever-increasing number of things we pay for, with small monthly subscriptions and increasing bills all starting to add up.
You should review each and every monthly outgoing, staring with the big things such as checking your mortgage rate is still competitive, checking your energy tariff is market leading and ensuring your home and car insurance have been reviewed since your last renewal date.
Once the big items have been checked, move onto the smaller things that add up, like your mobile phone bill, streaming subscriptions and broadband, along with any unwanted direct debits coming out of your account or bills that have crept up each month. Many of the current streaming services can be cancelled without penalty, so there is nothing stopping you just paying for a month to watch the shows you want right now and then cancelling until the next big thing comes along!
Freeing up even the smallest amount each month can help you to build your emergency fund and every penny saved should be put towards your emergency fund.
Put Those Skills To Use
The term ‘side hustle’ has become a badge of honour amongst the world of lifestyle bloggers but using your skills or things to generate extra income really can help to build those savings. The easiest starting point for most of us is to sell all of those things clogging up our garages and cupboards, with sites such as Spock and Facebook Marketplace allowing you to sell you unwanted items for free.
If you have a particular skill or hobby, it may pay to market yourself to those who need what you can offer. Sites such as Rated People allow you to advertise DIY services and if you have a ‘crafty’ hobby you could look to sell through specialist sites such as Etsy. There are also services out there which allow you to rent you car to people, your driveway for parking or your garden for camping, so even if you do not consider yourself a crafty sort you can still make money from your unused space.