How to prepare your finances and savings for the recession

Last week, the UK entered a recession for the first time in 11 years – following the devastating impact of coronavirus on the economy.

To make things worse, official data has shown that it’s the biggest recession on record.

For many millennials and all Gen Zers, it marks the second recession in their lifetime before they turned 30.

There’s no denying that the coming months (and years) will be a bumpy ride financially – particularly with widespread redundancies and salary cuts on the horizon when the government’s furlough scheme ends.

However, while we cannot control those external factors, it is possible to get organised when it comes to personal finance and there are plenty of things which can be done to prepare for the hard-hitting reality of the recession.

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Financial experts have shared some simple things everyone can do to prepare for the tough economic road ahead.

Budget, budget, budget

Pauline van Brakel, chief product officer at bank account management app Yolt, tells Metro.co.uk: ‘Budgeting is key to mastering your money and riding out a recession.’

Staying organised and sticking to strict goals can help you stay on top of your monthly earnings and can make things a lot less overwhelming. 

Pauline adds: ‘Take a look at your essential outgoings, (like rent or mortgage payments, energy bills and grocery shopping) and total these up. This will give you the minimum you need to get by each month.

‘When you take that away from your income, you’ll see how much wiggle room you have. It’s a good idea to try to live well within your means, recession or not.’

Make the most of personal finance apps and online banks

There are a plethora of apps designed to help with managing money – particularly for those who are clueless when it comes to the financial world.

Jon Ostler, CEO of comparison site finder.com, says: ‘Apps like Cleo and Chip can help you save spare change and avoid being overcharged on bills while the popular challenger bank Monzo also has a “Pots” feature that lets you open several Pots at once. Money held in them is kept away from your overall balance so it’s not accidentally spent.’

Many of these finance apps and digital banks, such as Starling, have a savings feature which puts a small amount away every time you spend – leaving you with a pot of money you’ve saved without knowing.

Look at income vs expenses 

Paul Went, managing director at Shawbrook Bank, adds: ‘The most important thing about managing money is being honest with yourself. Start by taking a holistic view of the money that you have coming in versus the money that’s going out. 

‘If you have a good understanding of your income versus expenses, you can then start to prioritise these and outline what is manageable for you. This will give a good foundation in understanding your finances and will help you to manage it better.’

Then any surplus money can then go into a savings account.

Give your finances a MOT

Of course everyone likes to treat themselves once in a while. But, when money is tight, these luxuries are the first things to go.

Alex Price, director of financial planning at Charles Stanley, says now is a great time to give yourself what he calls a ‘financial MOT’ – AKA reviewing your accounts and checking everything over.

Alex says: ‘At a time when we have so many subscriptions and financial products, it can be hard to keep track.

‘Going through what contracts you have in place will help you spot whether you are overspending, where you can economise or get a better deal and check that you’re getting what you’re paying for.

‘Shop around, now that we all have more time and compare rates on gas, car insurance, mobile phone contracts etc.’

Jon Ostler adds that it’s important to identify the small things which could make a real difference to your bank account.

He says: ‘Even seemingly small things like making your own coffee every day instead of buying one could see you save around £700 a year.’

Don’t worry in silence

If you’re worrying about your finances at the moment you are definitely not alone. The important thing to remember is that there’s lots of support out there.

Alex Price adds: ‘If you’re concerned financially at this time – whether it is income related or savings and investments – you won’t be alone, so don’t suffer in silence.

‘There’s help out there, whether it’s from your bank, your employer, financial adviser or charities. Speaking to someone will help alleviate some of the worry.’

Create an emergency fund…

We always talk about having money stashed away for a ‘rainy day’ but the truth is that it’s really helpful to have a little bit of cash to fall back on.

It doesn’t even have to be a lot, just a little reserved in case of an emergency. This will give you a bit more peace of mind, too.

Kevin Brown, savings specialist at Scottish Friendly, says: ‘You could start saving into a cash savings account that gives you easy access to your money. Use this as an emergency fund in case the car breaks down or you get an unexpected bill.

‘The “stepping stone” approach could be used as and when you have more disposable income. For example, start from £10 a month and if you can, increase it by what you can afford every year.’

This emergency fund could also come into play if you’re made redundant, as you’ll have some money saved away while you look for another job.

…but don’t stretch yourself trying to save

Steve Watson, a finance expert at Cushon says: ‘Don’t stretch yourself further than you are comfortable with. Work out what you can afford each month after bills and other essentials and choose an amount that you are comfortable with.

‘You can always increase or decrease your contributions depending on your circumstances. 

‘Many employers will also offer a workplace savings initiative whereby the money can be taken straight from pay – much like a pensions scheme.’

It’s always best to start out small, then add anything you have leftover to your account at the end of the month. But always remember your savings are there for you to use, so don’t feel guilty if you need to dip into them once in a while for something.

Think twice before taking out a new credit card or loans

If you’re thinking about taking out a loan or a new credit card it’s important to consider whether you’ll still be able to afford repayments in the event that you lose your job.

Paul Went adds: ‘If you’re considering taking out additional credit, ask yourself, do I really need it and what can I realistically afford in repayments?

‘Don’t rush into anything and always take your time to consider what’s best for you, now and in the future.’

If in doubt, take a bit of time to think about it and don’t hurry into any big financial commitments.

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