The economic outlook in many countries including the UK at present is dire, as the rate of inflation remains unusually high and pro-growth government interventions work against the Bank of England’s attempts to cool the markets. Between the rising cost of living and stagnant wages, experts are predicting a recession – the third in 15 years.
A recession is simply defined as two consecutive financial quarters of negative growth, often tracked via GDP. Consumer spending falls, and trade activity follows suit, leading to economic hardships for individuals and businesses alike. With recessions typically meaning the loss of money for many, what are some ways you can attempt to ‘recession-proof’ your savings and even see some profits during times of economic downturn?
The economic impact of a recession can vary from individual to individual, depending on the sector of the economy in which someone participates. For example, if you are in the construction or manufacturing industries, a recession may have a greater impact on your livelihood than if you are in the retail or service sectors. The following are five ways that having a recession-proof financial plan can help you:
- Reduce your living costs. When your income decreases, it may be difficult to cover all of your expenses. Make sure to keep track of your spending and try to minimize unnecessary spending by cutting back on your cable TV subscription, for example. Additionally, look into ways to save money on gasoline and groceries.
- Use debt consolidation techniques. During hard times, people may be hesitant to borrow money from banks or other lenders. One way to overcome this reluctance is to use debt consolidation techniques such as getting a personal loan with a low-interest rate and consolidating multiple credit card debts into one loan. This will lower your overall payments and help improve your credit score.
- Invest in safe investments during tough times. During tough economic times, it is important to invest in assets that will maintain their value even when the stock market falls significantly – such as real estate or precious metals – rather than investing in high-risk stocks or securities.
- Create an emergency fund. An emergency fund should contain at least six months worth of living expenses (with some extra left over just in case something unexpected happens). This money should be accessible without having to sell any of your assets or use any of your credit.
- Utilize social media to market yourself and your business. During a recession, people may be less likely to visit businesses or purchase items that they do not know about. Use social media platforms such as Facebook, Twitter and LinkedIn to promote your business and attract new customers.
The simplest and least risky approach to growing your holdings during a recession is to play the long game. A recession is a relatively short-term financial event, that sees the value of businesses and entities slump in the face of reduced spending activities.
But many of the businesses that see their value slump remain financially robust, and popular in their market. As such, the reduced value of shares in these businesses could be seen as a ‘discount’ of sorts, with their value all-but guaranteed to rise as the country emerges from negative growth. By investing in these shares during the ‘dip’, you can secure long-term profits on your investment through holding them until after the markets rally.
Of course, there are also shorter-term ways in which you can benefit from market downturn. One of the key practices used in trading and investment is ‘shorting’, whereby an investor profits from the devaluing of a stock or asset by borrowing it from a trader, selling it and buying it back at a lower value in order to return it.
For the retail investor, though, shorting is a complex and convoluted process. Instead, retail investment strategies like spread betting enable you to profit from market movements without directly investing in the market, whatever the market. In times of recession, downturn is less difficult to predict – increasing opportunities for growing wealth.
Look into freelancing and contract work. Many people are now looking for ways to make money on the side instead of relying on full-time employment. Freelancing and contract work can be a great way to do this since it allows you to control your own hours and set your own rates.
Consider selling products and services online. With so many people now relying on the internet to do their shopping, it’s no surprise that this is a popular way to make money during a recession. If you can develop a strong online presence and offer quality products and services at a competitive price, this could be an excellent option for generating income.
For a more stable, independent route to active growth of wealth, property investment is a particularly strong option. The property market has seen unusual growth since 2020, with property values increasing at their fastest pace in two decades earlier in the year. Nonetheless, property is robust asset for investment; demand is always high for property, and even as growth recedes property values edge upward.
The market faces a unique challenge in the new year, as rising Bank of England interest rates have a profound impact on the cost of mortgages for the first-time buyer. In the worst-case scenario, the housing market could crash, and properties could lose up to a fifth of their value. However, cash buyers and buy-to-let landlords stand to gain from this potential crash, with devalued properties another form of ‘discount’ to reap rewards from in the long term.
In today’s economy, it can be difficult to make ends meet. However, there are many ways to make money during a recession – and some of them are even recession-proof. One popular way to make money is through online marketing. If you have the skills and knowledge necessary to market yourself online, you can successfully find work in this industry during any economic climate. Other recession-proof methods of making money include freelancing, starting your own business, and network marketing schemes. So whether you’re looking for short-term solutions or long-term strategies that will help you weather any financial storm, take a look at our list of tips for Recession-Proofing Your Finances.