How to recession-proof your finances

The UK is now officially in a recession. We share some tips on how to get your finances in the best shape to weather it.

Following two quarters when the economy shrank, the UK is in a recession, which is likely to lead to wage cuts and unemployment. It’s a good time to ensure you have money saved and a decent budget to keep you going if you need it. But how do you do it?

Work out your living expenses

Add up all of your essential outgoings such as rent, bills, mortgage payments, insurance and school fees. There are some costs that you may need to estimate, such as the cost of your groceries. If you’re estimating, then think about the higher end of your estimate rather than the lower end. Better to over-budget and have money left over than find yourself looking down the side of the sofa for spare change.

If you have no debt, then spend some time saving up so that you have between three and six times your monthly outgoings to fall back on if anything were to happen. Keep this money in an easy access savings account to ensure that you can withdraw the money without giving prior notice. If you have debt, pay this off first. There’s no point putting money into savings if you’re paying interest on debt.

Reassess your budget

Make sure you take a look at your budget every now and then to ensure that you’re saving money where possible. It’s not strictly necessary to whip up a spreadsheet, there are loads of budgeting apps that can do the hard work for you.

Cut out what you don’t use

You might be paying for a magazine subscription that only ever makes it to the recycling, or for a gym membership even though your gym wear is more “lounge wear” these days. Go through your recent purchases or bank statements and make note of some subscriptions you really ought to cancel. You’d be surprised how much money you can save by doing this without even changing your behaviour.

Track your spending

You can use digital banks like Monzo, Revolut and Starling to help you achieve your budget. These banks track your spending and categorise your payments to help you work out your “problem areas”.

Let go of old habits

If you’re a sucker for Starbucks (or anything, pretty much), you can use something like Monzo’s integration with IFTTT (if this, then that). It lets you set up “fast food tax” which puts money into savings every time you spend at specific retailers. It doesn’t have to be fast food though, if you have an Amazon obsession or Zara habit, you can choose these as your retailers, too!

Reduce the cost of your debts

If you’re paying a high interest rate on your current debt, whether it’s a loan, an overdraft or a credit card, then you can reduce the costs of this debt, meaning that the money you’re sending off to the lender every month is going towards paying off the debt instead of paying off the interest.

For smaller balances (under £5,000) on credit cards and in overdrafts, consider swapping to a 0% interest credit card. You’re specifically looking out for one that offers a “balance transfer” or a “money transfer“. These have one slight difference.

What’s the difference?

A balance transfer is a transfer between credit cards or a credit card and a loan. So, if you have £1,500 on credit card A then you can move the balance or part of the balance to credit card B.

A money transfer is a transfer of money from a credit card to a debit card. This means that you can move, say, £1,000 from your credit card over to your everyday bank account. You’re more likely to do this if you are paying off an overdraft.
In both of these cases there is likely to be a one-off charge (around 2-5% to make the transfer).

Think about remortgaging

You’re not necessarily stuck with the mortgage you have, either. If you’re on your lender’s standard variable rate (SVR) or your introductory deal is about to come to an end, then consider remortgaging onto a better deal to reduce your overall term or your monthly payments.

Remortgaging is simply the act of changing to a new lender or a new deal. You need to go through the credit checks and affordability checks as you did before, to ensure that you can afford to repay your loan.

If you’re currently in an introductory period, you may find that you have expensive exit fees and early repayment charges if you remortgage now. It’s always a good idea to stick with the lender for the introductory deal and remortgage once they have moved you to the SVR.

Don’t suffer in silence

If you have money worries or you’re struggling financially, it’s worth speaking to your lender or your bank account provider. Often, banks have specialist teams that can help you organise your debt and give you advice on what to do next if you’ve missed payments or think you might miss a payment.

A quick google search for “money worries” followed by the bank or lender name should take you to the relevant provider’s page on the matter. You can also contact StepChange, Citizens Advice, the MoneyHelper or the National Debtline for help and advice. Our guide on everything you need to know about debt could help you too.

Think about a side hustle

If you’re fluent in French, consider teaching it on the side. Love to bake? Think about selling your goods. There are loads of different options out there for virtually every skill and plenty of different ways to market yourself. This could earn a nice little side-income, and might even turn into a full-time business eventually.

We have a huge number of guides on how to sell on sites such as Gumtree, Etsy UK, eBay and Instagram if you’re looking into selling online as your side hustle.

It’s worth noting that if you earn more than £1,000 in a tax year, you’ll need to fill out an HMRC self assessment tax return, but it’s not as complicated as it sounds. Read our article on side hustlers and tax evasion if you want to know more about this.

Swap energy and broadband suppliers

It’s easy to become complacent with your utility bills, but switching providers every now and then could save you some money. We have a complete guide to switching your energy supplier and we’ve done all the comparison work for you with our 2020 electricity and gas comparison.

Make sure you consider the cost of early exit fees before you switch – you might need to wait until your current contract has come to an end. Put a reminder in your phone for a few days before it ends so you have time to find a new deal.

Check that you have the best price for your broadband, too. Companies are always offering deals for new customers. It does often pay to be loyal to a provider in this case. Try comparing the best broadband deals in the UK.

Save up for (or even with) a rainy day

If you’ve already got an emergency fund saved up, it doesn’t mean you should stop saving. It’s always worth saving for a rainy day (or year, here in the UK!). There are loads of saving apps that can help you out, whether you want to put aside a specific amount per week or if you just want to save the change.

Apps like Moneybox and Oval can “round up” each payment you make to the next pound and deposit the difference into a savings account. Meanwhile, Plum uses open banking technology to work out how much money you can put aside, and does it all for you.

Aforementioned Monzo, a digital bank, can also round up your purchases and put them into a pot. The integration with IFTTT means that you can save money every time it rains in a specific area. You are saving for a rainy day on a rainy day.

Take out essential insurance

You can get insurance for just about anything, and it can be essential to ensure that you’re insured (try saying that five times fast) if you don’t have the money set aside for repairs or replacements. You can also get cover for your mortgage if you find yourself unable to continue payments due to injury. Make sure you regularly compare prices for insurance to ensure that you are getting a good price. Your bank account might include insurance, so it’s worth checking that you’re not paying twice for the same thing.

The 9 things you can do to recession-proof your finances

  1. Work out your living expenses and save up around six months worth.
  2. Reassess your budget and cut things out where possible.
  3. Reduce the cost of your debts by swapping to 0% credit cards.
  4. Think about remortgaging.
  5. Don’t suffer in silence. Contact charities and help services if you need help.
  6. Make use of your skills and consider a side hustle.
  7. Swap energy and broadband suppliers.
  8. Save up for (or even with) a rainy day using digital banking and savings apps.
  9. Take out essential insurance.
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