Unless you have been living under a rock these last few months, you will know the UK is not in the best shape from a financial point of view. The pound is tanking in value, interest rates are rising, and people are having to deal with the cost of living crisis.
All signs are pointing towards a UK recession in the near future.
While recessions are difficult for many, the challenge can be reduced with the right level of preparation. To ensure your finances are in the right shape, below are some helpful tips to prepare for a recession.
Reduce debt
The first step is attempting to reduce your debts as much as possible within a short space of time. Begin by tackling the debts that have the biggest interest rate, continuing until you whittle down your expenses.
What if you cannot eliminate your debts straight away? In this case, search for ways to lower the interest rates you’re currently paying. For instance, you could switch to a reduced interest rate with a credit card transfer.
Utilise income protection insurance
Okay, income protection insurance is unlikely to come to the rescue in the case of redundancy. Still, it can be a lifesaver if you are unable to work due to illness or injury. Even if the latter points don’t seem likely right now, you never know what’s around the corner – and it’s better to be safe than sorry during the current financial climate.
With this insurance, you can receive up to 70% of your usual gross salary in tax-free payments. Coverage like this can make all the difference during a recession when you cannot work. Comparison service like Future Proof, have experts that can help and advise you on the best insurance product.
If possible, save up an emergency fund
It’s not something that every household will be able to achieve. However, if you can, do so and put aside any spare money, you should save up an emergency fund. Try to aim for savings that can cover at least three months of your regular bills.
If you do experience a bad financial patch, you can at least have some peace of mind with an emergency fund – and you won’t need to fall behind with your bills or go into debt. It also means you can cover any unexpected bills such as a car falling its MOT.
Search for investments
This may not sound like the wisest step to take. With that said, recessions are not all bad news – particularly if you have the finances available to make wise investments, according to Money Saving Expert. As companies deal with the economic downturn, their value often drops. This is when you can strike, and, assuming the company makes it out to the other side, your investment can significantly increase in value during more prosperous times.
Just remember to proceed with caution when making any investments during a recession. The help of a financial adviser can be invaluable in this situation.
