If the UK is headed for recession people need to get their finances into shape, cut outgoings and try to save as much as possible while they can.

Many people are worried that the economic impact of the coronavirus will drag the UK into recession. While official economic data isn’t available yet, the early signs from data put together by the House of Commons Library paint a grim picture of rising unemployment, an increase in businesses falling, plummeting service sector figures and dropping consumer demand.

Daniel Harari, the researcher who wrote the report, says: ‘While we don’t know how deep the recession will be, it is clear we are already in recession. The crucial question is how long it will go on for. This will be determined by how long the lockdown is in place, and how much permanent damage is done to the economy in the meantime.’

So how can households protect themselves and their finances from the worst of any recession?

1. Address your debts

If you’re in a position to, you should first focus on using any spare cash to pay down expensive debt such as credit cards or loans. Find the debt with the highest interest rate and start paying that off first, before moving to the next highest rate. Moving this burden off your finances could really help if times get tougher.

However, many people won’t be in a position where they have spare cash to help pay off debt, and if that’s the case your focus should be on reducing the cost of any debt.

One thing that counts in your favour at the moment is that interest rates are at record lows, which means the cost of debt has fallen slightly too.

Those with better credit records will find they have more options open to them, but moving your debt to a 0% credit card could be a good option and means you can use more of your capital to pay down the actual debt rather than just paying off the interest. A personal loan could also be an option, assuming you have the means
to repay it.

If your finances have already been affected by coronavirus there is lots of help you can get from the bank, from interest-free overdrafts to payment holidays on loans and credit cards. Be careful with the payment holidays though, as you’ll still pay the interest so it can cost you more in the long term.

2. Build up an emergency pot

Your next step should be to build up an emergency pot of cash that you can fall back on, should you lose your job, see your income cut or face any unexpected costs. The fact that one in eight adults have no savings at all, and 45% of the population have less than £2,000 in cash, shows how financially exposed many people are.

Typically it’s a good idea to build up between three to six months’ worth of outgoings, so tot up your mortgage or rent, bills and essentials and work out how much you need. If this seems like a high figure then just put away anything that you can. This money should be available immediately if you need it, so put it in an easy-access cash account rather than an account where access to the money is restricted. But make sure you find one that’s paying the highest rate of interest – at the moment this is about 1.3%.

3. Take the red pen to your outgoings

A good way to generate some extra cash each month, and get your finances as lean as possible, is to use some of your new-found spare time to check you’re paying the cheapest price for all your services.

Start with the big things, such as making sure you’re on a competitive mortgage rate, which can save you hundreds of pounds each month. If you’re worried about losing your job in the future then you might want to extend the term of your mortgage so your monthly repayments are lower. Clearly this will cost you more in the long run, as you’ll be paying interest on the debt for longer, so you need to weigh up the pros and cons.

A good first step is to look at how much interest you’re paying at the moment – if you’ve slipped on to your lender’s standard variable rate then you’ll be paying far higher interest than new deals would offer.

But you need to look at the available equity you have in your home, what your home is worth and whether your income is sufficient to be eligible for a new deal.

You should also be aware that a number of mortgage lenders have pulled some products at the moment, so you might not have as many options as you would have previously. Speaking to a broker could be a good first step.

Once you have tackled that big outgoing, you can look at any unwanted direct debits coming out of your account or bills that have crept up each month. Whether it’s switching to a cheaper energy deal, assessing whether you really need three different streaming services or realising that your Sky package has shot up in price, there’s lots you can do just by going on a comparison website and hunting for a new deal and giving up things you don’t really need.

Previously we all claimed we didn’t have time to do these life admin tasks, but now we have no excuses. And reducing your outgoings now will free up more money each month to save, but also mean that if your finances take a hit in the future you’ve got fewer outgoings to pay.

4. Eliminate lifestyle creep

Aside from the bills going out each month, now is a good time to look at what you spend. Clearly the past month isn’t going to be indicative, but look back at the previous few months’ bank statements and work out where you’re spending your money.

As people earn more throughout their lifetime they gradually spend more on their everyday lives, whether that’s buying slightly nicer clothes, or going to slightly better restaurants or on pricier holidays.

It’s so small that we often don’t notice it, hence the term ‘lifestyle creep’. There’s nothing wrong with this as long as you’re living within your means, but it’s a good idea to pinpoint areas where you can easily cut back and save money. Even if you don’t need to do it now, it’s reassuring to know where you can make cuts if you need to.

5. Work on a side-hustle

Many of us find ourselves with more spare time, so it could be a good chance to turn your hobby into something that could generate an extra income, or use the time to learn a new skill that could turn into a new line of work or a second income.

If you’re worried about job security it could be good to have an alternative source of income to fall back on, even if it’s only small to start with.

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