Where to put money during a recession? Recession proof your finances to ensure that your money is not hugely dependent on the general economy.
A recession is simply a decline in economic activity over 2 consecutive quarters, which is 6 months. Economic activity is when people are buying and selling, and money is always on the move.
Recessions are a part of our economic cycles and we have no huge control of when they come or how long we stay in a recession for.
Even though we have no control of the economy, we have control over our own personal economy.
Here are the steps you can take in your personal economy to recession proof your finances and better your financial position.
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Where to put money during a recession?
To recession proof your money, cash is key.
Recessions hit our livelihoods and could heavily impact our lifestyle. Having easily accessible cash is key.
There are ways which you can look to for investing during a recession, however before you invest, take care of your cash flow first.
How To Recession Proof Your Finances
Beef up your cash savings
Recessions are a volatile time not just for the stock market but even in the corporate world. Jobs aren’t as safe and secure as we thought they were just a year ago, plus we don’t know what’s going to happen with our income.
Now is the perfect time to boost your cash cushion and beef up your savings. The big question is, how big is your cushion?
Considering your monthly living expenses, house, bills, food, how many times does your savings cover that? If you have 3 months worth, potentially boost this to cover 6 months worth, or 12 months worth.
It’s worthwhile reviewing your savings accounts to analyse the interest rates you’re getting. An alternative to the low bank rates is getting the government backed premium bonds.
The returns you could get from these are higher than the average bank savings rate in the current times. Alternatively you can keep a small portion of your savings as cash in a bank, and invest the rest in low risk bonds.
Review your insurances
Insurance covers us when life happens as usually the financial impact of an event would be great. The cost of fixing car damages after an accident for instance, could be as costly as buying a new one.
Now is a great time to review your current insurance covering overall and anticipate whether you have adequate cover for your needs.
Insurances to consider
income protection. Long term cover that provides you an income should you no longer be able to work due to an illness or injury.
Critical Illness. Provides you a lump sum payout if you are diagnosed with a serious medical condition such as cancer, stroke and heart attacks.
Life insurance. Pays out a lump sum payment to your loved ones after you pass away. If you have dependents or people you live with, they will feel the financial impact of your absence, so I’d highly suggest you look into this.
I understand that during a recession every penny has to count so you may be put off getting some insurance in place. I’d say review the options that are there and get the cover that is adequate for you.
If I personally had to choose one, it would be life insurance because the loss of me also means the loss of the income I bring.
Reduce your high-interest debts
Do you have credit cards, loans or buy now pay later deals? I’d say it’s a good time to double down to reduce your debts.
If your debts are growing at a faster pace than your investments and your savings, you will never out earn your debts.
Repaying your debts will free up more money to save and keep in your pocket, which you’ll need more of when things get tight.
Consider looking for 0% interest credit card deals to do a balance transfer. This is where you swap the debt on a high interest credit card onto a 0% interest card.
You could also look into consolidating your debts into a single low interest loan. This is where you take out a new low interest loan to pay off your other debts such as car loans, overdrafts, or credit purchases.
These 2 options are taking on new debt but under the premise that you will repay your other debts that are costing you more due to the higher interest rates.
Ultimately using this opportunity to pay down your debts which as a result, leads to more cash for you.
Budget! Budget! Budget!
Above all, now is the time to be in sync with your budget. How is your budget?
This is an absolute must to recession proof your finances to ensure you are in control of your money.
A good place to start is a zero-based budget.
If you didn’t know, a zero based budget is where you budget EVERY penny. In other words, your income minus your planned outgoings equals zero.
An alternative is the bare-bones budget, where you budget your absolute bare minimum that you need to live on and use the rest to save and repay debts.
Beyond a spreadsheet or an app, this also includes setting up your bank accounts in the right way. Having the right bank account setup will make your money management system much easier.
Bank Account Setup
Bills account. This is an account where all your fixed bills automatically come out every month/week. This includes housing costs, insurances, debt repayments, and subscriptions.
Essential spending account. This account is for the variable expenses that you have that aren’t automated bills. These include food, transport, and household items like cleaning products.
Personal spending account. This is the personal care and fun account where your eating out, shopping, hair, beauty, and treats money comes out of.
Savings account. It’s in the name, this is for your savings. Times may be tough and money may be tight, but savings is non negotiable. You can start saving with £1!
As a minimum I’d say it’s good to save at least 2 weeks of your living expenses, but ideally at least 3 months of your living expenses.
This setup is a great place to start and by dividing your money up this way you are setting yourself up to win! Above all, a budget empowers you to plan ahead financially.
Analyse lifestyle choices
Lifestyle inflation is when we match our living expenses (luxuries included) to our income. So if you got a £10,000 pay rise you would spend the extra money getting more stuff that needs to be paid for.
Now is the perfect time for lifestyle deflation. Where you downsize your lifestyle choices to give your money left over every pay day.
One key action here is to analyse the value of your lifestyle choices to you personally.
For instance, do you really need multiple cars or could you keep one car and use public transport when necessary?
Do you really watch all of Sky, Netflix, Disney Plus and Amazon Prime?
Could you switch where you do your food shopping to start cutting the cost of groceries?
You can achieve your fitness and body goals working out at home, at a £9 per month gym, or a £80 a month gym.
I am not an advocate of penny pinching and living on pot noodles and beans on toast, I’m advocating value. Are you spending your money on the things that bring you real and genuine value?
In short, make every penny count!
Diversify Income
Let’s be honest, one income source is no longer a safe bet anymore. You could be given a pay cut, made redundant, or the government could increase taxes. All leave you out of pocket somehow.
One big part of making your money recession-proof is to increase your income.
Take this as an opportunity to start a side hustle or build a business because having multiple income sources is no longer a luxury in this day and age.
There are various ways in which you can make money online and offline, the key is to start with an idea and run with it.
Have you been toying with the idea of launching a social media agency, writing ebooks, selling merch, or becoming a public speaker? Just do it!
Take Action & Recession Proof Your Finances
How recession proof is your money? Are you covered enough before you invest during a recession?
Moreover, which specific action will you take today to recession proof your finances?
Save this list an keep referring back to it as you tackle one action at a time.
Share this with your friend, family, or partner and empower them to recession proof their finances.
Let us know how you’re getting along by getting in touch with us, we’d love to hear from you
Knowledge is powerless without action
So take action, and take care
Thando