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    How to plan financially for a recession

    With forecasts predicting the UK is facing the prospect of a challenging two-year recession, inflation rising at a record rate and the cost of living crisis ever widening, as part of our recession resilience series, we consider some of the ways you can look to prepare financially.

    If possible, save an emergency fund

    During a recession, the risk of redundancy is unfortunately higher and this coupled with factors such as household bills continuing to rise, means it is extremely sensible to have an emergency fund available if at all possible. The ideal would be 6 – 12 months’ worth of expenses but obviously any amount is better than nothing.

    If you are able to raise an emergency fund, it can provide some much-needed peace of mind that you would be able to survive without having to take on additional debts or get in arrears with any bills. It is also important to remember that there can sometimes be unexpected events which arise and require immediate funds at short notice, such as damage to your property or vital car repairs.

    If saving an emergency fund is not an option, which is the case for many right now, then it is always worth looking closely at your everyday expenses to see if there are any savings that can be made there, although these may only be small individually, it can soon add up if there are a few.

    Review your investments

    Considering historical data, we know that stocks tend to rise right into a recession and fall during it. However, it’s impossible to forecast, as both markets and economies are unpredictable.

    It is important to understand that the market can be volatile, and you should aim to focus on the long term. Our Managed Portfolio Service is a bespoke investment portfolio produced by us, and managed in collaboration with AJ Bell, to make your life easier.

    Of course, when a recession is predicted, it is completely normal to worry about your investments. Working together, we continually monitor the market, conducting ongoing due diligence and proactively making fund and asset allocation changes when we feel it is necessary to manage volatility and drive long term growth.

    If you do have spare cash, there could be an opportunity to buy whilst markets are devalued; this could represent good long-term value.

    However, if your cash isn’t available to invest for at least 5 years, it’s worthwhile reviewing bank interest rates to ensure that you are capturing the most efficient return.

    Examine your mortgage

    Look ahead and speak to a mortgage expert before there are changes in your circumstances or any fixed rates come to an end. Unfortunately, it is looking likely for many that a rise in interest rates is inevitably going to lead to higher mortgage payments so it is sensible to start looking now at ways you are potentially going to be able to manage this. It may be necessary to look closely at your monthly expenses so see if there are any possible savings to be made which could cover a rate rise.

    Are you protected?

    Most people’s greatest asset is their income so in uncertain times, it’s more important than ever to make sure you are protected if you were to become unable to work because of illness or injury. Income protection or critical illness cover could provide a vital financial lifeline to you and your family should the worst happen and you become too ill to work.

    Another one to consider could be mortgage life insurance which would provide a lump sum to your family if you were to die prematurely. This could remove the huge burden of having to cover the remainder of the mortgage debt for your family in this difficult situation.

    Think carefully about your pension

    When faced with difficult financial challenges, it could be that your pension is low down on your priority list but this could prove to be a costly mistake in the long run. Your pension provides a great, tax efficient way to save and it is important to protect it, even when cutting back on your contributions could make life easier in other areas.

    If you are getting close to retirement and are concerned that your pension fund may have decreased in value because of the falling stock market then speak to your pension provider, for most, this shouldn’t be a problem as the level of risk for a pension portfolio decreases as you get closer to retirement age.

    If you don’t already have a pension, it could be a good time to consider starting one as if you look to invest while the stock market is low, it can provide more opportunity for higher returns in the longer term.


    There is no doubt that the coming months are going to be a huge challenge for many but considering some of the above factors in advance and being pro-active with planning for the worst, could make a huge difference to your financial outlook long term.

    Get in touch

    For further information or advice, contact a member of our financial planning team today to talk through your personal circumstances, email or call 01254 679131.

    A comment to note that the article does not constitute personalised advice and that advice should be sought before taking any action.

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