Last week, Jeremy Hunt announced we are in a recession and, with it predicted to be the longest recession since records began, it’s time to get money savvy.
For those of us who hate financial jargon, a recession is simply a period where there is a widespread and prolonged drop in spending – causing employment rates to drop and economic activity to decline.
Yes, it sounds scary, and it certainly isn’t ideal with Christmas around the corner, but it’s important that you don’t panic.
There are ways that you can keep your finances as secure and recession-proof as possible.
It’s the end of a somewhat disastrous year and we are all exhausted, but it may be time to work a little bit smarter and a little bit harder – in order to reap the financial rewards.
We spoke to savings expert, Lucinda O’Brien, for Money.co.uk for tips on how to keep your financial situation stable in this tricky time – it may not be easy, but it’ll be worth it.
Make your savings work harder
That money that you’ve stashed away could be doing more for you.
Lucinda said: ‘Many people choose to save or invest their money to protect their wealth. However, you should consider your savings goals before you choose a savings product to ensure you’re getting the most from it.
‘For short-term savings, you might want a savings account where your money is easily accessible, such as an instant access savings account or a cash ISA.
‘If you’re thinking more long-term, such as saving for retirement or a major life purchase such as a home, an investment ISA is a good option.
‘If you’re unsure about how to go about your savings, it’s a good idea to consult a financial adviser before you make any decisions.’
Reduce your outgoings
‘The obvious way of surviving a recession is to live within your means,’ Lucinda says. ‘If you can, reduce your outgoings and cut out those unnecessary or extravagant purchases.
‘Your £3 morning coffee may not sound expensive, but having one every day can add up over time.’
In fact, a £3 coffee every morning for a month will mean a monthly outgoing of £90.
She adds: ‘You don’t have to limit yourself to the bare essentials, but consider cutting out the things you can easily replace or live without.
‘Reducing your outgoings means you can save more and build up a financial buffer to protect yourself during a recession.’
Pay off your debt
Debt is a daunting thing that most of us would rather keep buried, but doing so isn’t healthy for you or your finances.
Lucinda says: ‘Try to pay off any existing debt you have as soon as you can. The Bank of England has already raised interest rates to 3% (the biggest single rate hike since 1989).
‘As interest rates rise, expect to start paying higher interest payments on your loans. If you can, pay off your debt or look at consolidating your loans.’
But how do you consolidate your debt?
‘Balance-transfer credit cards are a good way to consolidate your debt,’ Lucinda adds.
‘These cards allow you to move all of your existing debt from one or more credit cards to a single card in order to pay less interest.
‘Essentially, you pay off your existing balance on your other credit cards using your new balance transfer card and then pay off your debt on this new card at a lower interest rate (often this will be 0% for a given term, such as 24 months).
‘Paying less or no interest on your debt will mean you can pay it off much faster.’
Protect your retirement
‘With increasing inflation and living costs, it seems tempting to cut your pension contributions to help you get by,’ explains Lucinda.
‘However, if possible, it is important to maintain your pension contributions.’
It can be hard not to live in the financial moment, so to speak, but remember that future you needs help, too.
Lucinda adds: ‘Pensions are magic when it comes to long-term growth, and the more you put into them now the more you will have when you retire.’
Increase your income stream
There are several options when it comes to making some extra income during a recession, explains Lucinda.
She continues: ‘You can work extra hours, start a side hustle, or sell off some possessions you no longer need.’
While working extra hours is a viable option for those who don’t have children, that option isn’t always realistic.
‘If possible, you could rent out a spare room, your car, or even a parking space,’ Lucinda adds.
‘Increasing your income will help relieve the strain caused by the increase in living costs, and can help you maintain your savings and pension contributions during tougher times.’
If you want more tips and tricks on saving money, as well as chat about cash and alerts on deals and discounts, join our Facebook Group, Money Pot.
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