With record inflation and mounting fears of a recession, the UK seems to be heading to a 'stagflation' period, where economic growth is low and interest rates are high.
The Bank of England has also warned that the UK is facing its longest recession in history, with prices rising at the fastest rate in 40 years.
Let's look at how you can recession proof your personal finances with these money saving tips.
A recession is when the economy shrinks over six months, or two consecutive quarters.
When the UK economy shrinks, it's typically a sign that consumers aren't spending as much as they used to. A recession can also affect your employment and earnings.
The size of the economy is measured in GDP, or gross domestic product. If GDP increases, it's a sign that the economy is growing.
It's understandable that people are worried about their finances during a recession. Here are a few ways you can save money and safeguard your finances.
Another way of saving money is to start paying off the most expensive bills first, which are typically credit cards. Additionally, if you have several debts, concentrate first on paying off the ones with the highest interest rates.
If you're unable to pay off your bills, try to lower the interest rate you're paying. You may be able to switch to a reduced interest rate, for instance, by transferring the balance on your credit card and avoiding high interest debt.
If you have several debts, you might want to consider consolidating them into one. Even if the interest rate doesn't change much, consolidating all of your debts can make managing them much simpler.
If you have some extra cash, you might think about investing.
Contrary to popular belief, investing in assets like stocks during a recession may be a good decision.
It can imply that there are some great deals among the businesses whose share prices have dropped as a result of the turmoil in the stock market.
However, it's crucial to conduct some study on companies that seem to have a solid foundation and have a good chance of recovering when the gloom passes.
Additionally, you should hold onto your investments for at least five years, despite market volatility, to give yourself enough time to weather downturns and benefit from upturns.
When investing it is recommended to always seek independent specialised advice as your capital may be at risk.
Even though times may be rough, you should resist the urge to reduce your pension contributions.
If you've already made cuts, start boosting your pension as soon as you can.
According to UK wealth manager True Potential, a 25-year-old who lowers their pension payments by just 2% might lose out on £60,000 over the course of their lifetime.
You could start by looking to reduce your monthly spending in other areas.
Your money is your most valuable asset, therefore you should take steps to protect it if a sickness or disability prevents you from working.
If you become too unwell to work, income protection or critical illness coverage may prove to be a financial lifeline for you and your family.
Mortgage life insurance is something you might want to think about if you're still making mortgage payments.
If you pass away too soon, this policy will give your family a lump sum, releasing them from the burden of the remaining balance on your mortgage. Although there is little chance that this will happen, being prepared for anything can give you a lot of peace of mind.
Any time is not a good time to make rash financial decisions, but a recession is the worst of all.
Spending extravagantly may seem enjoyable at the time, but if your income becomes severely restricted, you may grow to regret it.
Now is the time to make reasonable financial decisions and refrain from taking significant risks.
Consider delaying significant financial choices for the time being. Instead, concentrate on positioning yourself well so that you will have room to manoeuvre when things get difficult.
You may be entitled to Government benefits depending on your situation. The UK Government offer payments to people on low incomes, or who have specific needs.
Based on information put together by Turn2Us, you may need to meet these requirements before you’re entitled to benefits:
Low income household.
Have children under the age of 18.
Sick or disabled.
You are a carer.
If you feel you meet these requirements, you can use Creditspring’s Stability Hub calculator to work out what you may be entitled to.
With good financial planning and expert advice, you can recession proof your finances and save money along the way. Although some experts believe the economy can turn around, the likelihood of an economic recession is becoming more every day.