How to Look After Your Money in a Recession

How to Look After Your Money in a Recession

As the economic landscape becomes uncertain, it’s crucial to adopt smart financial strategies to protect your money and safeguard your future. That’s why we’ve created this comprehensive guide of top tips to effectively manage your finances during a recession or economic downturn.

Here at Hansford Bell, we believe in giving our clients the power to control their money to achieve their life goals and achieve financial independence. We are regulated by the FCA and offer a host of wealth management services for clients with a diverse portfolio, and those looking to start investing in their future.

In this blog post, we will provide practical tips and expert advice on how to look after your money

Understanding the Impact of a Recession

A recession is defined as “when there is negative economic growth for two quarters”. This can mean a recession can last from as little as 6 months to a year or longer.

During a recession, the economy experiences a significant decline, leading to reduced consumer spending, possible job losses, and financial instability. Understanding the impact of a recession is essential for taking proactive steps to safeguard your money.

During a recession, lending money is riskier for the banks meaning they are more likely to decline applications for loans and mortgages. Recessions can also see periods of inflation where the cost to buy items becomes more expensive, this means we can’t buy as much with our money and need to save more for larger purchases.

Although recessions are a natural part of the economic cycle, they aren’t very common and sometimes economic downturns, or a ‘slump’ is assumed to be an imminent recession. The Bank of England had previously forecasted a second recession in the UK this year but has since gone back on this and actually projected growth for the near future due to the economy recovering.

However, there is still currently a cost-of-living crisis in the UK with the rising prices of good and services making life difficult for more and people. This kind of economic uncertainty can cause just as much financial concerns as a recession which means that it’s important to make smart financial decisions and plan for the future.

How to Protect Your Finances in a Recession

Create a Solid Budget

Developing a well-planned budget is crucial for financial success, regardless of economic circumstances, living within your means and borrowing as little as possible is the fundamental step to growing your wealth.

During a recession, it becomes even more important to keep track of your income and expenses. Consider the following:

  • Evaluate your current financial situation: Assess your income, expenses, and any existing debt. Identify areas where you can reduce unnecessary spending.
  • Prioritize essential expenses: Allocate your funds to cover necessities such as housing, utilities, groceries, and healthcare. Trim discretionary spending and non-essential subscriptions and purchases.
  • Build an emergency fund: Set aside a portion of your income each month into an emergency savings account. Aim for at least three to six months’ worth of living expenses, this will allow you a safety buffer should your income decline unexpectedly.

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Debt Management Strategies

Managing debt is crucial during a recession to prevent it from spiralling out of control. Here are some strategies to help you handle debt effectively:

  • Prioritize high-interest debts: Focus on paying off debts with the highest interest rates first, as they can accumulate quickly and add financial strain.
  • Consolidate and negotiate: Consider consolidating your debts into a single loan with a lower interest rate. Negotiate with creditors for better repayment terms if you’re struggling to meet payments.
  • Seek professional advice: If your debts are overwhelming, consult a reputable credit counselling agency to explore options like debt management plans or debt settlement programs.

Diversify Your Income

Relying solely on one source of income can be risky during a recession. Expanding your income streams can provide stability and added financial security. Explore the following possibilities:

  • Freelancing and part-time work: Leverage your skills and expertise by taking on freelance projects or part-time jobs to supplement your primary income.
  • Passive income streams: Invest in assets that generate passive income, such as rental properties, dividend stocks, or creating digital products like e-books or online courses.
  • Develop a side business: Consider starting a small business that aligns with your interests and skills. It could be an online store, consulting service, or any venture that suits your expertise.

Smart Saving and Investing

While a recession may make investing seem daunting, it’s important to adopt a long-term perspective. Follow these tips for smart saving and investing:

  • Save for retirement: Contribute regularly to your retirement accounts, such as a pension scheme or an Individual Retirement Account (IRA). Maximize any employer-matching contributions.
  • Diversify your investments: Spread your investments across different asset classes, such as stocks, bonds, real estate, and mutual funds, to minimize risk.
  • Seek professional advice: If you’re uncertain about investing, consult a qualified financial advisor who can guide you based on your risk tolerance and financial goals.

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Looking after your Money in a Recession and Safeguarding your Future

In times of economic uncertainty, protecting your finances becomes paramount. By understanding the impact of a recession, creating a solid budget, managing debt, diversifying income, and making smart saving and investing decisions; you can strengthen your financial resilience.

Remember, with proper planning and disciplined execution, you can safeguard your money and emerge stronger even in challenging times.

Financial Planning for a Recession with Hansford Bell

As experts in financial planning, we can help guide you through a recession or do the necessary planning to mitigate the impact on your financial situation. With services including Cash-Flow Planning, Wealth Management and Financial Life Planning, you can rely on us to help you make well-informed decisions.

We provide expert advice and help you understand your financial capabilities better so get in touch today to find out how we can help you safeguard your future.

*This article is for general information only and does not constitute advice*

A Fresh Approach to Financial Planning and Advice.

Hansford Bell aren’t your average team of financial specialists. We take the time to get to know our clients and help them realise what they want from their life, whether that’s a personal ambition or a financial goal.

Our planners are highly experienced and know the industry inside-out. We combine simplified, straight-forward tips and guidance with cutting-edge technology and a comprehensive understanding of your situation. We focus on your finances, so you can focus on living your life.

Want to know more? Talk to us today and we can start making that dream future a reality!