6 Ways To Ride Out A Recession
Read these six great tips for protecting your finances in the face of a recession.
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In my last 'Cracking The Credit Crunch' article I talked about how to recession-proof your job. Today I want to look at recession-proofing your finances.
Unfortunately, there's not much we can do individually to ward off a recession. But thankfully there are plenty of things we can do to protect ourselves from its effects. Take a look at these six steps to riding out a recession:
1. Slash your spending
When a recession hits, one of the first things we notice is money gets tighter. If you start to feel the pinch, then you'll need to learn to be creative with your budgeting. Find out how in Kick That Serious Spending Habit... Today!
You might need to be quite tough on yourself and resist the urge to splurge on luxury items or exotic holidays. It's important not to overspend now because depleting your savings or running up large debts will be more difficult to cope with later on if an economic downturn overstretches your finances.
2. Bust your bills
Whether we're in the midst of a recession or not, it always makes sense to pay as little for your bills as you possibly can. This is more important than ever because this year we're all suffering a triple whammy of rising taxes, utilities and food prices. Take a look at 7 Ways To Beat Higher Household Bills for great tips on cutting back your outgoings.
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3. Makeover your mortgage
In a recession interest rates are often cut back in an attempt to stimulate economic growth. This is good news for homeowners with tracker mortgages. A tracker mortgage usually moves in line with the base rate, so when the base rate drops your monthly mortgage repayments will be reduced accordingly.
You may not be entirely comfortable with the uncertainty that comes with a variable rate mortgage such as a tracker. Even if you prefer a fixed rate, you should still be able to trim back your repayments with a mortgage makeover.
Your mortgage is probably your largest monthly bill, so by remortgaging to a more competitive deal you could significantly reduce your outgoings. Visit The Motley Fool Mortgage Service now to see how much you could save.
If your mortgage is turning into a millstone, discuss extending the term or temporarily switching to interest-only with your lender.
4. Demolish your debts
Being heavily in debt in a recession is far from ideal, so start attacking your outstanding balances. If you can't afford to pay off your debts in full, then make sure you keep your interest bill down to a minimum. The best way to do that is to shift your plastic onto a 0% balance transfer credit card. The most competitive card now offers an interest-free period of 15 months, which should give you plenty of time to get on top of your debts.
The same applies to personal loans. The chances are you'll be paying more interest than you need to. If there are no early repayment charges, consider applying for the cheapest loan you can find and pay off your old one with the cash you have raised. This could save hundreds of pounds in interest over the term. To help you do that, visit The Motley Fool Loan Centre.
5. Step up your savings
If a recession really is on the cards, then the best thing you can do is step up your savings now. That way, you'll have something to fall back on if your job comes under threat. As a rule of thumb, try to save at least three months salary as an emergency fund. And make sure you put your cash in a market-leading savings account. Choose one here.
6. Don't jeopardise your job
If a recession hits hard you may feel your job is on shaky ground but you should think very seriously about your next move. It may be tempting to jump ship if job cuts look likely. But before you hand in your notice, work out whether your new position will actually be any more secure. If the new company runs into trouble and needs to shed jobs too, you'll be more at risk than most if you're faced with 'last in, first out' redundancies.
For practical ways to safeguard your job read my article: 7 Ways To Recession-Proof Your Job.
By following these six steps you should find yourself in a much a stronger financial position. And that has to be great news whether the threat of recession becomes a reality or not.