In these uncertain times, it is more important than ever to make sure your finances are in order. The painful squeeze on our living standards, driven by soaring energy prices and inflation will intensify and might push many economies into recession.
Making your finances recession-proof is all about taking practical steps to ensure your money is working hard for you. The tips listed below are ways to make your finances more resilient during a downturn:
1️. Make a budget and stick to it:
It’s worth keeping a spreadsheet of your spending habits so you can get a better idea of what eats most into your budget, and where you could cut back. If you’re feeling uneasy about the economy right now, the most important step you can take is familiarising yourself with your monthly budget.
2️. Have an emergency fund:
You need to ensure you can weather the storm in the event of any income disruption. Try to save up at least three to six months’ worth of living expenses so that your expenditure is covered.
3. Remove unnecessary expenses:
Review your bank statements, look at your bank accounts, and remove any pain-free direct debits. Consider if you’re currently paying for things you don’t need - e.g. membership or subscriptions. Now is a great time to review the details of where your money is going.
4. Increase your income:
There’s a limit to how much you can save, but there’s no limit to how much you can earn. Having multiple streams of income is amazing in times like this. If one income source starts to dwindle, you will have other sources to fall back on.
5. Shop around and switch providers:
Look at your energy tariffs, home insurance, car insurance, broadband, TV package, mobile tariff, etc. Now might be a good time to shop around and switch providers. Price comparison websites can help consumers compare the options available to help them save money.
6. Keep on top of your debt repayments:
Financial discipline is key where debt repayment is concerned. Make sure you are making all of your payments on time and in full. This will help you avoid costly late fees and keep your credit in good shape.
7. Pay off high-interest debt:
Prioritise any high-interest debt, such as credit card debt, personal loans, etc. The rates on these are usually higher than what you can make on your cash savings. The interest on bad debt also compounds.
8. Keep investing:
It may seem a little scary to be putting more money into a volatile stock market, but as long as the money isn't something you need in the next few years, it pays to keep investing.
9. Diversify your portfolio:
Review your investment portfolio and make sure your investments are well diversified i.e. spread across different industries, countries, risk profiles, and different asset classes.
10. Don't cash in your investments:
Now is definitely not the time to convert your investments to cash. While markets are likely to remain volatile and unpredictable, cash is all but guaranteed to lose value to inflation. Long-term cash should be invested toward long-term goals, especially with higher inflation eroding spending power.
About Nike
Oyenike Adetoye (aka Nike) is an impactful speaker, author and personal finance expert. A Chartered Management Accountant by profession. Nike is the founder and CEO of LifTED Finance, a private financial firm that educates, coaches and supports people on their journey through financial fitness and wealth management.