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Recessions are a fact of life. Although they’re fairly rare occurrences, we’re all likely to live through several. When they hit they bring job losses and financial insecurity for many, which in turn causes a huge amount of stress and worry.
That’s why, when the economy is healthy, it’s a good idea to prepare yourself for a downturn. Here we look at several ways to do that.
Recessions often lead to increases in unemployment and wage stagnation, when salaries do not rise, that means it becomes harder to keep up with debt repayments.
Start by paying off your most expensive debts, which could be payday loans, store or credits or other personal loans. One way to do this is moving credit card debt on to a low rate balance transfer card and using the money you were paying in interest to pay back the loan.
If you are struggling to pay off your debt, talk to a debt charity to get advice on what steps you can take. This may involve a debt management plan which reduces your repayments to an affordable level.
Look at the incomings and outgoings in your bank account for the past three months and work out where you are overspending. Are you subscribed to a service you rarely use? And are you spending much more on food than you realised?
Once you know where you can make savings and how much you need each week to cover your essential costs, you can draw up a budget using a free online planner.
Some people like to open different bank accounts for each outgoing — bills, rent, car costs and so on — to help them manage their money, which is fairly easy to do if you bank online. By setting up standing orders that put the necessary money in each account after payday you know exactly how much you have left over to spend.
Also, while you are looking at your bills, make sure you are getting the best deals possible. If you haven’t switched your utilities providers or mortgage deal for years you could be missing out on big savings.
Once you’ve budgeted and found where savings can be made, start putting away an amount you can afford each month.
If you lose your job, a pot of savings will help tide you over until you find a new one. This is particularly important if you are self employed and unlikely to get any redundancy pay to fall back on.
You can never be sure exactly how much you’ll need to get through a recession. But it’s generally advised that you have enough to cover three months’ worth of outgoings in a savings account you can access at any time. Of course, this is likely to be a large figure which may seem out of reach, but start saving what you can each week and it will soon grow into a useful sum.
Workplaces are always evolving, but the speed of change has been accelerated in recent years by digital technology. The more you embrace these changes and learn new skills the less likely it is you’ll be made redundant during a recession. And if you are, you’ll be in a better position to find a new role.
As you build your skills and try new things, you’ll meet new people and your network will grow. This will open the door to more opportunities when you need them.
You can also build your skills outside the workplace and begin to create a side job that could one day turn into full-time business.
Recessions often bring opportunity. They shift the economic landscape which creates new markets and ways to make money, perhaps from the side job mentioned above. The Covid-19 recession has, for example, accelerated the move to internet shopping, which has given online sellers access to a bigger audience. In fact lots of successful businesses were founded during a recession.
It can also be a good time to invest if you’re able to. Asset prices such as shares and housing are likely to drop during a downturn, if you can afford to buy into these assets and wait for the rebound you may end up in profit.
Whether you’re able to start a new business or not, if you lose your job during a recession you’re likely to need financial help. So it’s a good idea to explore what help is on offer before you require it. Here are some steps to bear in mind, just in case you need them:
You may consider selling your home to generate extra funds that will help you through a recession. This could give you the financial breathing space you need, but you should think carefully about whether it is right for you.
If you decide to go ahead, we can buy your home in as little as seven days. We do not use estate agents so you will not be charged their commission, and we instruct and pay for solicitors to help you keep costs to a minimum.
We’re always happy to chat about our service and how we can help you, so please get in touch.