It's official: the UK has slipped into recession for the first time in over a decade. Normally, economists hardly agree on anything, ever. But right now, they all seem to think this downturn is going to be a deep one. So we've put together a few top tips to help you get as ready as possible for the financial slump.
1. Be prepared
We know planning for the week ahead is tough enough right now - trying to plan for a recession could seem super daunting. So we've broken how to get recession-ready down into small, manageable tips. And while you might not be able to put all our ideas to the test, if you do what you can as early as possible, you’ll be in a much better place financially when the recession really takes hold.
2. Budget, budget, budget
Budgeting is key to mastering your money – and riding out a recession.
Take a look at your essential outgoings, (like rent or mortgage payments, energy bills and grocery shopping) and tot these up. This will give you the minimum you need to get by each month. When you take that away from your income, you’ll see how much wiggle room you have. It’s good to live well within your means, recession or not.
Don’t forget, in our smart-thinking money app, you can easily set budgets in a couple of taps. This gives you a great, visual way of keeping an eye on how your spending’s shaping up.
3. Cut your outgoings where possible
Why not go over all your expenses and consider making cuts wherever possible? Yolt’s bills and subscription tracker can root out any lurking direct debits you may have forgotten about so you can free up funds.
You may even be able to save on your essentials. By using comparison sites (like MoneySuperMarket in Yolt) you can make sure you’re getting the best price possible. Regularly checking what you’re paying on your energy and broadband bills could save you hundreds of pounds a year.
4. Turn your debt to dust
It’s easier said than done, but during a recession it’s better to have a financial blank slate than a bunch of debt. Although you may not be able to pay everything off in one go, it’s good to prioritise downsizing any obligations you have. Because when you’ve got less committed spending, you’ll find yourself with more free cash each month, which you can put toward other things.
Try to pay off the right debt: credit card bills and loans (particularly any high-interest short-term loans) may be the place to start.
5. Grow your nest egg
Although savings rates are at historic lows, it’s still a good idea to have a nest-egg put aside and ready to crack open on a rainy day.
Even if you haven’t got one yet, don’t panic! It’s never too late to start saving. A great way to begin squirreling away is the 50/30/20 split.
Earmark 50% of your income for essential spending
Bookmark 30% for luxuries
Mark 20% for saving
If you’d like a little more to fall back on a bit quicker, you could even flip your “luxuries” and “saving” splits. So put 30% into a saving account and leave yourself 20% for treats. This split may not work for you during these unprecedented times. You can always tweak these amounts to suit your budget - just try to stick to a set amount of savings each month.
When it comes to choosing a savings account, you can get better rates with fixed-term accounts – but these have a minimum investment term. You won’t be able to withdraw your funds until the account’s matured, so think about your situation before locking cash up.
6. Boost your credit score
You may not want to put too much on credit in trying times, but it never hurts to have a healthy credit score. Because if you do need to fall back on the plastic or apply for a loan during the downturn, you’ll get much better rates.
One way to build up your score is to put a little on your credit card, a lot – just make sure you pay off your balance regularly.
7. Have a look at your bank accounts
This one won’t apply to everyone, but it’s worth keeping in mind.
In the UK, customers are protected when financial companies fail. If the worst happens (touch wood!), and your bank or investment provider collapses during the recession, you could claim up to £85,000 in compensation.
But if you have accounts with different banks within the same banking group (which share a banking license), the FSCS has to treat them all as one bank. This means that compensation limit applies to the total amount you hold across all these accounts.
Imagine you have a current account with Lloyds, and a savings account with Halifax. These are both part of the Lloyds Banking Group. If you had £100,000 split between these accounts, and the worst happened to the Group, only £85,000 would be covered.
You can reduce your risk by splitting your money up across accounts from different banking groups.
No one knows how the recession will really be, but it looks like it could be a while before things get back to normal. While it’s not a bulletproof plan, preparation is the best way to limit a recession’s impact. Be proactive: re-evaluate your outgoings wherever possible and think about starting a side hustle. You never know, you may find you’re better equipped to ride it out then you thought!
Got any recession-busting tips of your own? Let’s hear them at firstname.lastname@example.org!