The UK is entering a recession. Here’s how to prepare your finances

It's starting to look very scary on the ground. Businesses are closing down, people are losing their jobs, and Mortgages, Energy Costs, and Food prices are all climbing.

So what exactly is the government doing about it? And here in Conwy our own beloved incompetent council is upping council tax by 10% to cover their appallingly bad money management and waste!

And yet the council staff are all on an excellent wage!

This Christmas most Brits had to rein in their spending as the cost of living crisis has forced most of us to cut back to withstand the impact of record-high inflation.

Most people will remember what it was like to live through the 2008 recession, part of the global economic crisis. Britain also briefly entered a recession in 2020, but recovered by the autumn.

Now, high energy prices, the war in Ukraine, Brexit, and the fallout from the pandemic is causing inflation to rise at a worrying rate, and the economy is shrinking.

A recession is defined as two successive quarters of negative GDP growth, with the Office for Budget Responsibility confirming that the UK tipped into a recession in November last year. It predicts this will last until at least autumn 2023.

For some, it’s a scary case of déjà vu, and for the younger among us, it’s difficult to know what to expect. As in most worrying situations, it’s best to be prepared. We spoke to Brean Horne, personal finance expert at NerdWallet to find out what steps you can take now to get your finances in the best shape possible to withstand economic uncertainty.

What does a recession mean for my finances?

Inflation reached 10.7 percent in November last year, meaning average prices were almost 11 percent higher than they were at the same time in 2021. For people already in poverty, inflation is often much higher as the prices for cheaper products increase more. It’s the cost of living crisis in a nutshell: higher prices, lower spending, and fewer products sold. All the hallmarks of a shrinking economy.

“People are already experiencing financial difficulty as a result of rising inflation which has affected the cost of everyday essentials and caused interest rates to soar,” Horne, told The Big Issue.

As well as making the pound in your pocket worth less, recessions usually cause a significant shift in the economy which can cause people to lose their jobs.

During a recession, businesses will likely try to create more financial stability, explains Horne, leading some to freeze hiring new staff or even try to reduce their wage bill. This means there could be fewer opportunities for promotions or pay rises for existing employees or in some cases there may be redundancies.

So what should you do? Here are the steps you can take right now to prepare for uncertainty.

How to prepare your finances, and career, for a recession

“While the prospect of a recession may seem daunting, prioritizing good money management strategies can help you take control of your finances”, said Horne.

Budgets help you to better understand your financial circumstances and help you identify areas where you may be able to cut costs and make a saving.

Here are top five steps you can take to get prepared for the economic downturn.

1. Alter your spending habits sooner rather than later

Small expenses on things that are not important can add up, meaning you might have to cut out necessities or purchases that bring you happiness. Try to analyze where you can make changes to your weekly and monthly spending habits and prioritize what is most important for your monthly budget.

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“It’s useful to create a simple budget plan which highlights bills and outgoings to help you see where you can afford to cut down,” Horne says.

2. Focus on paying off high-cost debts

Over two-fifths of Brits currently consider themselves to be in debt, according to new findings from the personal finance experts NerdWallet.

“Having outstanding debts can not only be worrying but can also have a direct impact on your credit score,” says Horne. This can impact your ability to get a loan, credit card, mortgage, or other financial products down the line.

If you have multiple debts, prioritize repaying high-cost debts such as credit cards or overdrafts first, recommends Horne, and if you have a personal loan, ensure this is paid on time, every month.

3. Build up an emergency savings account

With the uncertainty of the current climate, it’s useful to have a backup fund to be prepared for anything unexpected that may occur such as becoming unemployed, being unable to work, or being faced with more increased costs in the future.

Figure out your expenses and then figure out how much you can save each month on top of that. Set it up as a direct debit to a high-interest savings account or ISA and then make sure you stay within your limits each month.

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You could even get a pre-paid debit card, like Monzo or Revolut, and have that as your only way of paying for things while out and about. Once the money gets low there you have to hold on until next month. It’s a good way of staying within your budget and separating your bills and savings from other expenditures.

4. Check your credit score

Monitoring your credit score is a good habit to develop and, contrary to popular myth, checking it doesn’t hurt it. Checking your credit score means you’ll be able to see if there’s room for improvement to increase your chances of securing affordable loans in the future, should you need it.

There are free options out there at places like MoneySupermarket, Experian, and Equifax.

Here are some ways Horne suggests building your credit score:

Pay off all your debts on time
Make more than the minimum repayment on credit cards each month
Put utility bills in your name
Register to vote
Avoid using payday loan companies
Use eligibility checkers before making applications, and reduce the number of credit applications you make
Clear any outstanding CCJs (county court judgments) or payment defaults in your name

5. Recession-proof your career

If you’re concerned that you could face losing your job in the recession, consider recession-proofing your job to make sure you have the skills, opportunities, and confidence to find work elsewhere.

Start by expanding your existing skills to learn more marketable skills, including transferable, soft, and technology skills, as these are essential for a lot of job roles. This could mean taking up the opportunity for a technology training course your boss has been nagging you to do or taking on additional responsibilities in your current role so that you can tell future interviewers about your skills.

Make sure your CV is updated and showcases your biggest accomplishments. This will allow future employers to get a better picture of what you can bring to their business.

You might want to consider a second job or side hustle to help support your finances in case you do lose your job or your wages are lowered as a result of a recession, but be wary of the impact overworking can have on your mental health.

From...https://www.bigissue.com/life/money/uk-recession-how-to-prepare/

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