With analysts predicting the UK to fall into recession in 2023, many Britons may be wondering what this could mean for their money. But, while there are things people can do to help recession-proof their finances, there are also certain moves people “shouldn’t” make, an expert has warned.
Experts at Zuto surveyed Britons to determine if, and how, people have prepped for the anticipated recession and found that while a percentage of people are taking positive steps to bolster their finances, others are having to make sacrifices for financial stability.
Just over half of respondents said they aren’t financially stable enough to survive a recession, and as much as 47 percent said they had reduced their outgoings.
However, Rajan Lakhani, resident money expert at smart money app Plum, said: “A worrying trend we’ve noticed, is people cutting back on their pension payments due to the rising cost of living.”
According to Mr Lakhani, Plum research found more than one in 10 (12 percent) have been cutting back on savings or pension contributions as they come under increasing financial pressure, which is likely to become even more acute in a recession.
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Mr Lakhani continued: “If you can afford it and have some pension tax allowance remaining, saving into your pension is always a good idea, whatever the market conditions. That’s because pensions have great tax benefits, namely pension tax relief. For example, if you’re a basic rate taxpayer, your £80 contribution becomes £100 in your pension while higher rate taxpayers only need to contribute £60 to secure £100 in their pension.”
“Employee pensions in particular are a no-brainer to save into as your employer will typically match your contributions, effectively a pay rise that directly funds your retirement.”
But, understandably, with ever-increasing prices expected to continue well into 2023, people might be concerned as to how to keep saving despite this.
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Mr Lakhani said those who are saving regularly but find themselves under financial pressure, should “reduce” the amount they save or invest, rather than stop completely.
He explained: “That means your pot can continue to grow, and you can increase payments again later. It’s also worth noting that by saving into an account with interest, you can take advantage of improving interest rates on the market right now, so you can make smaller savings go further.”
Certain apps – like Plum – can scan a person’s income and outgoings to set them aside a suggested amount to save automatically each week, based on what the person can afford.
Mr Lakhani said: “This works particularly well when your spending is changing month on month, as Plum will set aside less when you need to spend more, but will keep saving for you in the background.”
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Another tip to foster more income streams to boost savings pots is to turn a hobby into a side venture.
Explaining how the cost of living crisis is no reason to drop hobbies, experts at Zuto said: “The only difference is that you should think about turning these hobbies into a way to make money on the side.”
They continued: “There are plenty of websites online, such as Etsy, which let creators share and sell their content with the world. All you have to do is set up an account and get started.
“The money brought in by this can then go towards your savings or act as spare cash for social events.”