What is an Economic recession?
Recessions are, in essence, business-cycle contractions, marked by a period of decline in economic activity. This means that, whenever people are less willing to purchase items or goods, the market is looking at a potential recession risk. This is then further amplified by global or local events, which would entice a drop in spending – financial crisis, trade shocks, adverse supply shocks or the bursting of an economic bubble. In the UK, we need to observe negative economic growth for two consecutive quarters for it to classify as a recession.
The UK has not faced such problems since the “Great Recession” of 2009, and it is only natural for financial experts to seem worried.
Before we dive right into the thick of things, I’d like to give you a quick disclaimer:
The contents of this article are based entirely on my personal experience and research. The things that I share here might have worked for me, but I cannot guarantee that they will do the same for you!
Furthermore, I am not a consultant, financial advisor or an investment expert. As always, I’d advise you to get in touch with a certified professional before introducing any significant changes to your lifestyle or budget.
Does the Economic Recession Affect You?
Long story short – yes, yes, it will.
This type of situation would affect everyone – the business leaders, the investors and the employees. The real question that you should be asking is how much it will affect you.
Whenever I find myself in a difficult situation, I always fall back to my number one rule –
Just like with the COVID-19 outbreak, keeping calm is crucial. The more worried you are the more mistakes you’ll make. Now take a moment to relax. Yes, I’m serious. Look away from the screen, take a deep breath and count to three. See? Much better!
Okay, let’s talk solutions. Here’s a quick checklist of the things that you’ll need to consider, in order of importance:
- Your health
- Your home
- Your emergency fund
- Your spending habits
- Your long-term plan
Your health and wellbeing always come first
Of course, this also extends to the health of your loved ones, but remember – you can’t help anyone if you fall ill.
Don’t give in to the stress – stress is cited as one of the biggest threats to your health, and you can’t afford to disregard it, especially when faced with a potential crisis.
Make sure that your insurance & healthcare plans are in order – You don’t want to find yourself in a situation where you can’t get help if you need it. I’ve written extensively about insurance – links in the resource section below.
Do some research – this will help you not only mitigate stress but also understand the situation better. Look for similar situations in the past and see how people around the world have dealt with them.
Catch up on payments if possible
Make sure that you’re up to date on your mortgage payments and mitigate the potential risks of losing a property due to inability to pay off.
Emergency Funds – Create your buffer
One of the best ways you can do to protect your household against a potential recession is to build up a buffer, or simply put – to save some money aside.
On top of providing you with safety and peace of mind, a buffer will give you something to rely on in case things go really bad and you can’t or don’t want to use credit.
Of course, this doesn’t happen overnight (or rather – it shouldn’t). Try to gradually build it up your emergency fund, up until you have at least five or more months’ worth of expenses held in cash deposits. You want this money to be safe, reliable and easily accessible.
If you’re a regular here, then you’ve probably seen me talk about this a thousand times. Budgeting is a crucial life skill, and if you want to get anywhere, you need to master it. In the case of a recession, however, it’s even more important!
When faced with potential financial uncertainties, you will want to be able to account for every single penny. You need to know what you spend per week, and what that amounts to per month. Know how much money is going inside your account, and how much you need to spend. Even a quick look at your budget can show you which expenses you need to cut down on.
Minimise your spending
After you’ve identified the underlying issues with your budget, you can start working on minimising your expenses.
Things like household bills, phone and broadband deals and banking, are have proven to be big money sinks for UK citizens in general. If you have an opportunity, I’d suggest looking into better alternatives for as many types of bills as possible. Reducing your monthly living costs can go a long way towards improving your budget, without cutting into your quality of life.
Additionally, now is a great time to review your borrowings, savings and financial assets. Again, you should try to get the best deals available.
When difficult financial times roll by, you’re going to have a much harder time avoiding overdraft. Most people are guaranteed to slip right into it before realising. This is why having the right current account is absolutely vital.
The borrowing rates can vary dramatically, and spending a couple of hours on research can really help you out in the long term.
If the worst happens, and you are forced to rely on overdraft to make ends meet, your debt can quickly skyrocket. Not only that, but some overdrafts can also charge you a daily fee. And even if it doesn’t seem like much at first, it will add up very quickly!
Capitalise on your savings and investments
As with most business and financial-related issues, you will want to be proactive instead of reactive here. Sudden market changes, coupled with the risks of inflation, can be quick to devalue your assets.
When it comes to long-term savings, the most important thing is to ensure that inflation can’t eat into your purchasing power. This means that you should try to get the most out of your investments before a crisis happens.
Experts also suggest that you should avoid making significant investments right before an expected recession, as you have no way of accurately predicting how the market will change.
Look for more ways to leverage your current assets
If you have any available properties or other assets that you’re holding off on utilising, now’s the time to put them in play. The more resources you can prepare the easier time you’ll have once the going gets tough.
Take the Rate Rises into account
In the times of recession, it is natural to expect banks to raise their rates, and you’d be wise to consider them when preparing your household financial plan. Remember – with finance, you always want to think long-term.
Additionally, avoid long-term mortgage or loan commitments. I know that most property owners will not have the chance to utilise the mortgage advice, but luckily, it applies to standard loans as well!
Even the “most affordable” of loans, the low-interest or even interest-free ones will still end up draining precious resources, which you might need elsewhere.
Look for affordable repayment plans
If you happen to be in debt at the moment, then I suggest that you consider your options carefully. The best option would be to start repaying it as soon as possible. Experts warn that the rates are expected to hike, and you’d be wise to consider sharper repayment plans if the situation allows for it. Again, the key here is being proactive, not reactive. You want to get as much of your debt out of the way as quickly as you can.
Additionally, try to find a more efficient method of repayment and avoid variable rates.
Look to overpay your mortgage if possible
This is usually not the easiest of tasks. Still, if you do manage it, it will give you a decent safety buffer against financial crisis.
A lot of first-timers in the property field will have a tiny amount of equity in their homes, which puts them at significant risk. If the prices drop by even 10%, they might quickly realise that they owe more than the property is actually worth. With negative equity, comes the difficulty to reportage or move the property. And believe me when I say this – the high-interest standard rate table is the last place that you want to be at, especially during difficult financial times!
To avoid falling into the trap of becoming a potential “mortgage prisoner”, experts suggest that you try and overpay on your mortgage where possible. Not only will this reduce your overall debt, but it will also help you gain more equity.
As always, I’ll urge you to check with your lender’s rates first – you don’t want to overpay and get caught up in penalty fees!
Do your own research!
This one might be a bit difficult if you aren’t interested in finance. Still, it’s absolutely vital if you want to minimise your risks. Read up on the situation. Take a look at what the experts are saying. If you don’t understand something, look it up. Educate yourself. And, even though I realise that this is the perfect time to make some book pitches, I’ll refrain from doing it directly in this post (if you’re still interested in my finance-related reading list, you will find a link to the corresponding article in the resource section down below).
After you’ve got a decent grasp on the overall picture, start keeping track of the financial press. Make a habit of quickly skimming through the titles and learn to discern the essential pieces from the fluff and fillers.
The things to keep an eye out for are government-related policy changes, large companies experiencing difficulties or new legislations.
And that about sums it up for today’s article! I hope you found this post helpful, and if you did, please Don’t forget share it with your friends and subscribe to my newsletter to to see other similar content like “Work Smarter, Not Harder,” “A breakdown of the “Successful Mindset” and “Steps To Handle Business Failures”. As always, if you’ve got any questions, ideas, or experiences of your own to share, please do not hesitate to do so in the comments below – it’s always a pleasure to hear from you!
Thank you all for reading, and until next time:
Stay green and motivated!
Recommended for further reading:
- How to Win Friends and Influence People
- You Are a Badass: How to Stop Doubting Your Greatness and Start Living an Awesome Life
- Happy: Finding joy in every day and letting go of perfect
- Business Secrets from the Bible – Daniel Lapin
- MONEY Master the Game – Tony Robbins
If you are looking to open an investment account follow these links below: