A recession is when there is a widespread decline in economic activity because of loss of income or concerns about the economy. In early 2020, the world started to react to the effects of COVID-19. Due to the way the virus was spreading, it was important to limit human contact. Many businesses stopped trading, people were told not go to work unless if it was essential. The effect of this was that people did not spend as much, demand for products fell and the economy shrunk to levels that were not seen since records began in 1949 according to the Office for National Statistics.
A recession is officially announced if the Gross Domestic Product (GDP), that is a measure of economic activity of the whole country, has fallen for two consecutive months. Some indicators of a recession are high inflation, unemployment, a crash in house prices, low spending and low market confidence. Due to the impact of the lockdown, economist have been warning that a recession maybe inevitable.
How can you prepare your finances?
One of the causes of a recession is the reduction of income, which could be a result of unemployment or a reduction in business demand. Firstly, it’s important to know how much money is coming in and going out. This can be done via a budget. Check if your emergency fund has adequate savings to cover you for any shortages of income. Check that all your income related insurances are up to date and that they will cover you for any losses due to the pandemic. It’s important to know the financial assistance that is available.We have written a blog (Support currently available for the Self employed and Businesses) with further information.
Reduce your expenses
Review your expenses and cut down on any unnecessary spend. This can be done by looking at all your contracts that are due for renewal. Search the market for better deals or if possible do not renew them. For services that charge based on usage, try to reduce your usage or find cheaper alternatives. For example, food shopping is a great place to start as you can swap expensive branded products for cheaper alternatives. Try to cut down on non-essential spend by using cheaper of free alternatives. Divert the money saved to your savings or to paying off your debts
Create other sources of income
Creating other sources of income can be done by monetising a hobby that you have or looking at the way people habit’s have changed and seeing if you can offer a service or product that is aligned with that change. For example, when the lockdown began many people had to stay at home and began to spend more time online. Providing an online service that people are willing to pay for like a Virtual Assistant is another way of creating another source of income.
Uncertain times can be scary, but they also provide many opportunities to try something new.