Experts are predicting that the US may fall into a recession by the end of the year. Lots has happened in the last year, including the aggressive Fed rate hikes, the ongoing trade war with China, the War in Ukraine, collapse of regional US banks and the Debt Ceiling Talks impasse to name but a few.
In simple terms, a recession is a period of decline in the economy lasting for more than six months, or two financial quarters. During a recession, people lose their jobs, businesses close, and economic activity decreases. What happens in the US will affect people living in the UK. In the last year we have seen sky-high inflation figures and we have definitely seen an increase in the weekly shop, filling the car and most likely an attempt to try and tighten our belts and spend less. If the US goes into recession we may see a severe reduction in economic growth with some experts and analysts suggesting a 30% drop in the S&P 500 by the end of 2023. The UK economy may follow even if it has been quite resilient over the last year. So, what personal finance tips will help you to mitigate the effects of a potential recession? Develop a Budget and build and emergency fund We should all try and work on spending less than we earn. It’s important to have an emergency fund so that if the worst happens and you loss your job that you have enough money set aside to pay your monthly bills. You should aim to have an emergency fund that allows you to cover between three to six month of monthly expenses and in some cases particularly if you are closer to retirement having slightly more to prevent you having to dip into saving or investments. Taking Tesco’s strapline of “Every little helps” you could look at doing a review of your spending to identify where all your money goes. I use the Money Manager App to track my spending and it allows me to identify subscriptions that I could do without. Do we really need Netflix, Amazon Prime and Disney Plus. If we save extra money we could use it to top up our emergency fund. Focus on paying off your debts A key part to preparing for a recession or just getting your finances in order is to tackle your debts. It’s really important to get rid of your debt and then I recommend cutting up your credit cards. There are several approaches that you can take. Either tackle the highest interest debts or your smallest debts. Which works better for your will depend on personality type. What’s important is that you take action and start to extinguish your debts. Invest in yourself – no-one else will
The Boy Scouts Motto is “Be prepared”. Who knows what is coming around the corner. During a recession lots of people will lose their jobs, so having an up to date CV may help you land a new job. Another idea and one that I recommend is invest in yourself and look to take advantage of continual professional development. Learn new skills that may make you more valuable to your current employer and save you from losing your job. Look to have more than one income stream We shouldn’t just be paying the renewal quote for our insurance policies etc. We need to be more savvy and use comparison sites eg Money Saving Expert or Quidco to get better deals on renewals or get kick backs. There are other ways to increase you income. You could ask for a raise at work or take on a side hustle. A side hustle that I use is match betting, where you can strategically place two bets on the outcome of an event in a way that allows you to win no matter the result, while earning free bets. Any winning are tax free. Have a look at www.outplayed.com Be smarter with your investing pot The stock market will quite often price in certain potential outcomes as such will slump before the lagging measure actually shows that we are in a recession. It will also rebound before the economy starts to improve. As Warren Buffet states Be wary when others are greedy and be greedy when other are fearful. There will be opportunities to buy assets at a discount if we head into a recession, so keep some money on the side for those opportunities. Or you may choose to invest more into a pension pot, be that a workplace pension or a Self-Invested Personal Pension (SIPP). Finally, these personal finance tips will help you to be prepared for whatever happens and are in reality just good practices for us all.
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