5 Tips to Prepare Your Finances for the 2020 Recession
Updated on Tuesday 26 May 2020
The term ‘recession’ itself is enough to trigger a state of panic as we begin to hear it more in the news, especially during these uncertain circumstances.
The previous recession, dubbed the Great Recession (Dec 2007 to June 2009), led to a spike in unemployment and debt, with the earnings of many in the UK being slashed.
It took around five years for the economy to recover from the impact of the Great Recession, illustrating just how important it is to prepare and protect your finances against the risk of such difficult times.
We are currently living in unprecedented times, and the fallout of the Coronavirus (Covid-19) pandemic could lead to a significant economic collapse in the UK.
Read more: How to Prepare Financially for the UK Recession in 2020
The 2020 recession has been the steepest economic downturn since the Great Depression, according to the International Monetary Fund (IMF), so what can you do to protect your finances?
Here are five tips to help you take care of your personal finances amid the Coronavirus crisis and its adverse repercussions.
1. Pay off as much debt as possible
Addressing your debts should be at the forefront of the list of your priorities; you should try to use any spare cash to clear your expensive debts, including credit card or loan payments.
While it may feel unnatural to start using your spare cash, rather than saving it, paying off your debts will clear these burdens and you will be glad that you did so in the long-run.
If you’re in a situation where you can afford to do so, you should make a list of all your debts and start by paying off the one with the highest interest rate, before moving on to the next, and so on.
If you don’t have the cash to pay off your debts, your focus should be to reduce the cost of those debts.
Interest rates are currently at record lows, meaning that the cost of paying back any debts has also fallen.
You should consider transferring your debt to a 0% credit card or a personal loan with a more competitive interest rate if you can, as more of your cash then pays off the actual debt, rather than paying interest.
Remember that people with better credit scores will have more options available to them, so be sure to start improving yours as early as possible.
There is support on offer to those whose finances have already taken a hit as a result of the Coronavirus pandemic, including interest-free overdrafts and payment holidays.
Read more: How to Manage Your Debt
If your finances have been impacted by Coronavirus, the following guides may be of use to you:
2. Build an emergency cash fund
Once you’ve cleared your debts, you should then focus on building your emergency cash fund.
Having an emergency pot of cash that you can fall back on will bide you some time if you ever lose your job or have your wages reduced, minimising the overall impact on your finances.
Data has shown that one in eight adults have no savings whatsoever, so now would be a great time to get started (as long as you have the cash).
To provide yourself with a useful safety net, you should aim to save an amount that represents up to six months’ worth of outgoings – this includes your mortgage or rent, travel costs, utility bills, and every-day essentials, such as groceries – but only if you can afford to do so.
You should put this cash aside in an easy-access savings account, so that you can access it instantly whenever you need to, but be sure to choose a provider that’s offering a competitive interest rate.
3. Review your bills
With many people being furloughed or at least having some extra time while working from home by not having to travel to work, now would be a good time to make sure you aren’t paying too much for your bills.
You should review:
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Your mortgage rate and its term
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Direct debits
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TV subscriptions
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Energy bills
If you feel that you may be paying too much for your gas and electricity, Look After My Bills can help you by automatically switching your supplier if there is a better deal on offer.
It’s a free-to-use service and provides a legitimate, hassle-free way of saving money on your energy bills.
4. Reducing how much you spend on ‘non-essentials’
While entertainment services like Netflix and Disney+ may feel very essential during the Coronavirus lockdown, there are some ways to reduce the amount you spend on non-essentials.
The first thing to do is take a look at your outgoings from the last three months and figure out where you’re spending the most money. Once you know this, you can then work on cutting those costs and being more disciplined with your cash.
For example, if you’re spending more money on clothes or takeaways than you’d like, you can set a new budget for those specific things and try to stick to it.
Saving money on every-day outgoings will help you free-up more cash, allowing you to put more into savings to use if ever you experience unexpected financial hardship.
Read more: How to Budget on a Low Income
5. Consider a way to generate extra income
If you have more time on your hands during lockdown (we understand that not everyone will), you should take this chance to explore ways of earning additional income.
How you choose to do so depends on your interests and expertise, but some examples include tutoring, making YouTube videos, writing an e-book, or even selling your own products online.
With an additional source of income, you shouldn’t be hit as badly if you ever lose your job suddenly as a result of a recession. It may not be enough to permanently live off, but some income is certainly better than none.
Read more in our full guide to preparing financially for the 2020 UK recession.
Personal finance advice at Compare UK Quotes
Here at Compare UK Quotes, we are dedicated to helping you make the most out of your money, whether that’s by saving money on every-day bills or taking out the most affordable insurance policies.
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