- The UK has entered its deepest recession on record thanks to the uncertainty of the coronavirus pandemic.
- Some hope the UK economy will bounce back — a so-called “V-shaped” recovery. Others fear the slowdown will be more drawn out.
- Whatever happens, you can still prepare your finances to help survive the economic downturn. We spoke to personal finance experts to get their tips for managing your money during a recession.
- Visit Business Insider’s homepage for more stories.
The UK has officially entered recession for the first time in 11 years, after posting its biggest economic slump on record during the second quarter of 2020.
There have been hopes of a quick bounce back — a “V-shaped recovery” — that would see the UK swing out of recession and post economic growth in the next quarter. But whether that happens or not, recessions typically bring tougher times for households as companies cut jobs and reduce pay rises. It may also be harder to get a mortgage or other loans.
There are things you can, and should, do to manage your money during a recession. We spoke to financial advisers and personal finance experts to find out how best to navigate the uncertainty.
Update your CV
Companies have already cut staff and there could be more pain when the job retention scheme, which provides state support for wages, ends in October.
Staff shouldn’t wait until they lose their job to start preparing for the worst, said Sarah Coles, personal finance analyst for investment platform Hargreaves Lansdown.
“Update your CV and your social media profiles, and sign up to jobs websites to keep an eye out for anything that comes up in your area,” she said.
Read more… We asked a career expert to build the perfect resume. Here’s a template you can use to update your CV and land a dream job
“Vacancies have plunged since the start of the crisis, so finding a job will be far harder. However, some sectors are recruiting more than others – health and social care for example. If you’re willing to take on something different until things return to normal it could be much easier to find work.”
Don’t panic about ISAs and pensions
Financial advisers warn against knee-jerk reactions to economic events, especially as most people will be investing in an ISA or pension for the long term, so any losses now should be made up in the future.
“Taking a short-term view based upon news and events like recessions is counter-productive,” Andrew Neligan of Neligan Financial said.
Neligan added that trying to time markets is a strategy that is “doomed to fail because not even the ‘best’ investors get it right correctly.”
“The successful investor doesn’t get carried away with the positive or negative events but continues with patience and discipline over the long-term”.
Check your rainy-day fund
Experts recommend having three to six months’ worth of essential expenses in a rainy-day fund to cover emergencies, from fixing a leak to surviving a job loss.
Coles said this should be in an easy access savings account rather than in your current account, where you may be tempted to spend it.
Neligan adds that it is important to have insurance policies to cover your salary if you can no longer work. These could include income protection, critical illness insurance, or even redundancy insurance.
Maintain a good credit score
Lenders may toughen up their criteria if you are looking for a mortgage or a loan, so it could be harder to borrow if you have a poor credit score due to missed debt payments.
David Macdonald, founder of advisory firm The Path, suggests checking your credit report is accurate and taking steps to improve your score.
“Banks are happy to hand out umbrellas when the sun is shining but more reluctant when it starts to rain,” he said. “You will need to show a good credit score during this time to borrow when you need it”.
Shave down your bills whenever possible
Check if you can save money on your expenses, such as energy bills, broadband, or food shopping, and also focus on paying off debt.
“Get your head around your outgoings and incomings so you can understand what you have each month,” Heather Owen, financial planner at wealth manager Quilter, said.
“You should also consider if you can pay off any debts or consolidate them so they are more manageable. Start with those with the highest rate of interest”.
Laura Suter, personal finance analyst for investment platform AJ Bell, said you could make your biggest saving by switching your mortgage, especially if you are on a lender’s default standard variable rate.
Also check for non-essential spending such as a gym membership, which many survived without during lockdown, or streaming services that became crucial during that period.
“Everyone is guilty of being lured in by a free trial and then forgetting to cancel it, meaning they are paying for a service each month that they’re not using,” Suter added.
“Go through your bank statements and see what you’re paying for and then work out whether you’re getting value-for-money and still using the service — if you aren’t, cancel it”.
Sort your savings
If you are still able to put money aside for savings, Suter advises making sure you are getting as much interest as possible, which may mean locking your money in a fixed-rate savings account for longer.
“If you’ve already got enough cash and your emergency fund is sorted, think about investing some of it for a potentially higher return,” she said.
“Just be sure that you aren’t likely to need access to it for five years or so and be comfortable with any risk you take”.