It’s official! We are in a recession for the first time in more than a decade.
Unemployment figures are due to increase following the end of the Governments Job Retention Scheme, or Furlough as it is more commonly known. So if you haven’t started auditing your personal finances, now is the time.
Here is the girls just wanna have funds guide to recession proofing your finances:
What’s happening with your finances?
I’ve said it before and I will say it again. Budget, budget, budget!
During a recession, you need to understand more than ever where your money is coming from and where it is going.
This is also a good time to review spending habits and understand any behaviours that need to be addressed.
If you are a spender, now is the time to start building up an emergency fund. If you are living with a partner get honest about your finances and talk about how you can live within your means.
Whilst reviewing your budget, make sure you check your bank statements so, you can identify where there are unnecessary direct debits and any subscriptions you are not using.
Another way of reducing your outgoings would be to talk with your current providers to understand if there are new tariffs or plans that are more cost effective.
Failing that, if you can’t a switch to another supplier may be a good option and a local comparison site can help you do this.
Once you have an idea of who can provide a cheaper service, sign up to a cashback website, and process your change through there for some extra money back to you.
If you can also afford to set up sinking funds, this will help avoid a last minute panic buy for bigger one-off costs, such as Christmas.
My advice with any spending at the moment is buy it if you need it, but if it is a want, it needs some serious consideration.
The best thing to do is add it to your basket and if you still want it 24 hours later, you can afford it and don’t have to borrow money to pay for it, then go for it.
Something to bear in mind with this, is that businesses worry about you leaving items in your online basket and 9 times out of 10, they will send you an offer code for money off or free delivery.
If you have any spare money at the end of the month, consider putting this towards your debt. Anything that can be paid over and above the minimum payments will reduce the interest costs and clear your balances faster.
If you qualify for credit, you could opt for a 0 percent creditcard to stop interest payments for a short period of time. You need to ensure that you close the transferred creditcard to avoid temptation in reusing it at a later date.
A great app that you can use is the Debt Payoff Planner that helps you calculate what can be paid and how quickly, using either the avalanche or snowball debt repayment models.
What is an emergency fund?
An emergency fund is a pot of money that you can access easily in the event of an emergency. Losing your job or a stream of income if you are a contractor or self employed would fall into this category.
Initially you could start with £1000, if you are paying off debt. However, the best advice would be three to six months income in order to cover your expenses, should you lose your job.
An emergency fund should be kept in an easily accessible account, but I would suggest saving with a different bank to where you have your main finances. We keep ours with Starling bank.
What is your current situation?
Regardless of your situation, you should aim to reduce your spending and increase your income. Although the Government have plans in place to support businesses to alleviate redundancies and bring employees back from furlough, it is unlikely to support to the degree that you can support yourself through sound financial planning.
That said, don’t struggle, be honest with your providers and creditors and see what support they can offer.
If you at risk of redundancy make sure that you review your contract and understand what you are entitled to. If you are unsure, you can try Acas, Citizens Advice or your Trade Union representative to get further advice and support.
Creating additional income streams
One of the positives that has come from the pandemic, is that people are starting to understand the importance of creating additional revenue streams.
If you have skills or hobbies, you could look to make money from these by selling on Etsy or Fiverr. Maybe there is money to be made online? It’s certainly something worth exploring now to do whatever you can to boost your income.
Get smart with money
Now is the time to be smart with your money. Do the hard work now so that you will be free from worry in the coming weeks and months.
Always compare your options and shop around. If you are on instagram, why not follow some debt free community profiles for additional hints and tips for everyday life?