Recessions impact us all, whether it's through rising costs, job loss or interest rate increases – we’re all going to experience the effects of the recession in one way or another, especially on our finances.

Put simply, a recession is a significant decline in economic activity that lasts for months or even years. You can expect to see a sustained period of weak or negative growth in gross domestic product (GDP) that is accompanied by a significant rise in the unemployment rate. Although a recession can have a negative impact on many, they are an unavoidable part of the business cycle.

So, how can you prepare your personal finances to ensure you are in the best position possible?

1. Live within your means: Avoid taking on any new debts, and if you can, look to pay off any debt as quickly as you can. It is also worth sticking to a budget and not spending more than you can afford each month.
   
   
2. Reduce your outgoings: Whether it’s cutting down your food bill or skipping the takeout coffee, it all adds up and will help you to build a financial buffer. This isn’t about depriving yourself of life’s luxuries, but instead will help you save and give you a greater understanding of where your money is going.
   
   
3. Have an emergency fund: Life can throw us a curve ball every once in a while, so it is worth being prepared financially. After all, we don’t know what is around the corner. Therefore, it is important to have an emergency fund which is equal to at least three months' earnings. Keep this in an easy-access savings account so you can dip into it whenever you need it.
   
   We’d recommend looking around to find the best easy-access account on the market to reduce the impact of inflation on this pot of money.
   
   
4. Invest for the long term: If you already have an emergency fund, and you have additional savings or income, you could consider putting this money to work through investing. Share prices fall during a recession, meaning you can buy shares for less, but you will need to ride out the downturns if you want to stand a chance of benefitting from the upturns.
   
   When it comes to choosing where to invest, do your research. There are risks associated with any investment, so having a balanced investment portfolio will help to manage this risk. We’d also suggest speaking to an Independent Financial Adviser as they can offer expert, whole of market advice to help ensure your money is invested in a place which aligns with your long term financial goals.
   
   
5. Protect your retirement: Although it can be tempting when things are tough, try to resist cutting your pension contributions as this will impact the amount of money in your pension pot when you come to retire.
   
   

If you do need to stop paying into your pension, start topping it up again as soon as you can.

If you’re concerned about how a recession could impact your finances or would like to further understand the steps you can take to prepare financially for a recession, we’re here to help! You can book your no obligation chat with one of our Financial Advisers, here.

You may also find our article, financial planning during a recession useful.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.