Five Tips on How to Prepare for a Recession in the UK
With the UK’s current inflation rate, rising fuel prices, and an economy that’s generally contracting, you might be worried about what the recession means for you. One of the best things you can do for yourself during stressful economic times is to be proactive.
There are loads of ways to prepare for a recession; building an emergency fund and reducing your expenses are a few of the most common ways to prepare. However, taking other steps, like bolstering your income and preparing yourself professionally are equally wise things to do. In this blog, we’ll outline five savvy ways you can prepare yourself for the coming recession in the UK. Let’s get started!
1. Start Saving
Savings: they’re not glamorous or even particularly interesting, but they’re crucial to making it through a recession comfortably. With your wallet feeling the squeeze due to inflation and rising fuel prices, and with the possibility of layoffs, the importance of having enough saved can’t be stressed enough. Here’s what you should focus on:
Build an Emergency Fund
To protect yourself against the worst case scenario, bolster your emergency fund. Most experts suggest having between 3-6 months of expenses saved in an emergency fund. This money can provide a brief safety net in case you’re laid off or if money is particularly tight in any given month.
Related read: Should You Save or Pay Off Debt During a Recession?
How Much Should You Save A Month?
Experts typically advocate for saving at least 20% of your income each month. Granted, if you follow this advice, it would take you a year and a half to save the minimum recommended three months of income for an emergency fund. But here’s the good news: that’s okay; saving and building an emergency fund isn’t a race. What’s important now, as the UK faces recession, is that you start developing the habit of saving in order to build a level of financial protection.
Don’t Withdraw Your Investments During a Recession
The best practices for pensions and investments are without a doubt one of the most counterintuitive things to do during a recession. As stocks plunge and markets slow, it can be very tempting to pull your investments out and ‘salvage what you can.’
However, this is actually one of the worst things you can do. Whenever possible, it’s better to maintain your regular investment strategy until the recession fades. This is because if you invested when prices were up, but you pulled your investments when prices were low, you could actually be losing a significant amount of money.
2. Control What You Can
Your spending and saving is one of the areas where you have a significant amount of control. When the Bank of England Base Rate rises, you don’t really have much control over how it impacts your interest rates on mortgages or credit cards, but you can control how much you spend in other areas.
To reduce your spending and find new ways to save, try taking the following steps:
Make and Follow a Monthly Budget
Making a budget is an essential step for keeping your finances on track. Make sure to account for each expense you see in a month so that you’re not surprised by anything unexpected.
Additionally, keep in mind that budgeting is a process that takes time. If your budget doesn’t end up aligning with what you face in reality, make the necessary adjustments to your budget and see how the next month goes.
When you’re developing your budget, consider enrolling in direct debits for your bill payments. Not only does this simplify things, but it will also improve your credit score by ensuring you have a consistent payment history.
Related read: Eight Tips to Get Your Credit Fixed in 2022
Identify Areas to Cut Back and Save During a Recession
Once you’ve identified the main areas where you need your money to do the most, you can begin to identify areas you can cut back your spending. Some areas you might be able to save on regardless of your spending include things like:
- Groceries: Despite groceries being impacted by inflation, with some experts anticipating that the average cost of a weekly shop will increase by £10, groceries remain an area where you can get creative and reduce costs.
If you take inventory of items that go to waste each week, you can identify some areas for savings. For example, if you regularly find yourself throwing out milk because it goes bad before you finish it, you could purchase a smaller size.
- Walk, bike, or take public transit: Walking, biking, or taking transit are great ways to save right now, especially for those who live in urban areas. With petrol prices up 45% due to inflation, avoiding driving when possible can keep a significant chunk of change in your pocket—plus, you can avoid parking fees.
Additionally, commuting by bike or walking can help you stay in shape, potentially reducing the need for a gym membership.
- Become a savvy shopper: Use coupons and buy sale items wherever possible. Additionally, you can find web browser extensions that will automatically search for coupons for you at checkout.
- Use a debit card or cash where possible: Not only can using a debit card or cash make you more aware of how much you’re spending, it also means your purchases won’t accrue any interest, while also keeping your credit utilisation ratio low.
3. Update Your CV
Should you end up losing your job, being ready to apply for new positions is essential to finding new work quickly. To be prepared, update your CV and online profiles like LinkedIn, Indeed, and your portfolio if necessary.
Demand for talent has been high since the UK’s pandemic recovery, but with a recession looming, employers may need to reduce expenses and elect to lay employees off, and if they hire, they’ll need to be fully confident that their new team members are fully qualified and ready to deliver results.
Updating your CV, online profiles like LinkedIn and Indeed, and your portfolio if necessary can help you be prepared in the case you need or want to apply for a new position.
4. Consider Continuing Education or Upskilling
Whether this entails going back to school for more formal education, developing and refining your existing talents, or learning a new trade, education can be an incredibly valuable investment during a recession.
Additionally, continuing your education can prove to your current employers that you’re dedicated to mastering your role and making yourself invaluable to the business. This is a win-win, as it will most likely give you an added layer of job security, but if you do unfortunately find yourself getting laid off, it can make you a more attractive candidate for other positions.
5. Consider Getting a Side-Hustle
More work might not be what you’re looking for, but a side hustle allows you significantly more control over your earnings, working hours, and role. A side hustle has two main benefits: it provides a bit of security in case you lose your job, and it allows you to bolster your savings and build a nice safety net.
Boosting your income with a side hustle is also important for workers in industries like food service or entertainment, where your earnings can fluctuate by the day or season. An additional stream of income can add a much-needed level of stability during a recession.
Finally, increasing your income can improve your credit score and make you available for other better credit products or more attractive interest rates by lowering your debt-to-income ratio.
Pave Can Help You Get Prepared
Navigating a recession is no easy task, and many people feel like they’re unprepared or don’t know what to do. However, by taking the right steps, you can mitigate the impacts that an economic downturn will have on you—and you don’t have to do it alone.
Pave is here to help you build resilient credit and develop financial wellbeing, through the good times and the bad. Our active credit building reports your timely payments to credit reference agencies so you get all the credit you deserve during these difficult times, and our bills monitoring tool helps you stay organised and on top of your payments.
If the looming recession has you worrying about your finances, don’t wait to see if you can weather the storm. Join the hundreds of thousands of Brits who have downloaded the Pave app and taken control of their credit and finances. To see the results for yourself, download Pave from the App Store or Google Play today.