How to prepare for a recession

After pandemic lockdowns and reports the UK is facing a recession, more people are seeking ways to protect themselves economically and financially.

From recession-proof jobs to understanding how to prepare for a recession, taking steps to ensure financial stability is integral when economic uncertainty looms.

Learn how to handle a recession and secure your future with our helpful and practical guide.

What is a recession?

A recession is a significant downturn in economic activity, resulting in decreased output, reduced consumer demand, and high unemployment levels.

In the UK, a recession is declared following a decline in Gross Domestic Product (GDP) for two consecutive quarters or six months. A country’s GDP grows when the total value of goods and services it offers increases. However, this value decreases in a recession, and the process reverses.

What happens in a recession?

Many things occur during a recession. Various factors can be the cause or effect of a recession, combining to feed into an economic downturn.

A recession usually results in higher interest rates, impacting credit card repayments and non-fixed-rate mortgages. Job cuts and business closures can also result in fewer tax takings by the government, reducing public spending.

Businesses and consumers may also feel the impact of supply chain issues due to a rise in prices caused by high production costs or disruption. Banks may stop and limit their lending due to a shortage of funds.

During a recession, job losses may occur, companies will make fewer sales, and people will spend less on certain products. Graduates and school leavers may also need help to get their first job.

Recession-proof jobs

While no job is entirely recession-proof, specific industries tend to survive better in economic crises. Key workers such as doctors, nurses, teachers, and emergency responders are always required, no matter a country’s financial situation.

If you’re worried about future unemployment, switching to a career in one of these industries could be wise.

• Healthcare professionals
• Education
• Law enforcement
• Emergency services
• Financial services, e.g. accountants, tax advisors, and banking staff
• Utility services, e.g. workers in the energy, water, and waste industries
• Specialised care, e.g. therapists, social workers, and care home staff

You may also avoid jobs in the following sectors if you require a more secure and recession-proof role. Work in these industries often grinds to a halt during a recession, as people spend less on holidays, large purchases, and building projects.

• Construction
• Leisure travel
• Car and motor vehicle sales
• Home furnishings
• Property

How to prepare for a recession

Alongside securing a more stable job, there are several ways you can plan for a recession. Following these tips will give you the best chance of surviving economic turmoil.

1.    Save an emergency fund

An emergency fund provides peace of mind and protects your household against rising costs, surprising expenses, and possible job losses.

If you can, financial experts recommend saving enough money to cover 3-6 months’ worth of outgoings. However, any amount of saving is beneficial.

2.    Pay off debt

Interest rates usually rise during a recession, so paying off your debts could save you a significant amount.

Reduce those with the highest interest rates first, typically credit cards or short-term loans. If you can’t pay off the whole debt, try to reduce the interest you’re paying, e.g. doing a credit card balance transfer to secure a lower rate.

3.    Invest wisely

As we’ve mentioned, some industries are more resilient than others during a recession. Investing — if you’re in a position to do so — in these companies could set you up for the future and make your money go further.

Essential goods and pharmaceutical businesses are examples of recession-proof investments and could be particularly valuable when interest rates rise and your cash is worth less.

If you already have investments, diversifying your portfolio can offer security. For example, having a portfolio of construction companies is unlikely to offer a significant return during a recession. Instead, opt for services and goods that will remain in demand no matter your country’s economic state.

Always seek advice from a reputable financial advisor and understand the risks of investing, too.

4.    Revise your mortgage

Fixed-rate mortgages are protected against rising interest rates, so it’s worth considering switching if you’re concerned about a recession.

Of course, you could pay more initially but come out better once rates increase and the economic crisis takes hold.

If you don’t want to consider a fixed-rate mortgage, set money aside to account for potentially higher interest rates.

5.    Assess your financial situation

Unfortunately, making these changes, savings and investments mean little if your monthly outgoings are still high.

Evaluating your financial situation and assessing where you can make cuts is one of the most important things to do when preparing for a recession.

Do you have subscriptions you haven’t used in a while? Can you do your weekly food shop for cheaper somewhere else? How much do you spend on new clothes each month?

Asking yourself these questions gives you a clearer picture of your finances and improves your relationship with money. You may even find unexpected joy in shopping second-hand or switching to a different supermarket. A welcoming and comfortable place to come home will make surviving a recession all that much easier. Pickard Properties offers a range of professional flats and houses to suit various budgets. Browse our selection and secure your dream home today.