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Follow our 8 easy ways to protect your finances

A recession could well be on the horizon. The economy contracted in March and April, and the Bank of England predicts that growth will “slow down sharply” from here.

If the economy slows, unemployment could rise, house prices stabilize – or even fall – and household finances could be even tighter.

Of course, a recession is not a given and the economy could prove more resilient than some experts suggest. There are many bright spots in the middle of the darkness. However, even if we avoid a downturn, it is still worth being prepared. Here are eight things you can do now in case there are bumpy months ahead.

Take care of your money: even if we avoid a slowdown, it always pays to be ready

1) Protect your income

Millions of households are already struggling to pay their bills. More than a quarter would struggle to pay their bills within a month of losing their income, according to the Resolution Foundation think tank.

Insurance is a way to protect against loss of income due to illness or unemployment. It requires a monthly outlay, but could be worth thousands of pounds if the worst were to happen.

Income protection insurance covers you if you are incapacitated and cannot work. The most expensive policies pay you a monthly income until you reach retirement age or even beyond. The cheapest pay for a fixed term of one, two or five years.

Some policies cover redundancy. These policies were difficult to put in place when the pandemic hit, but have since become increasingly popular. The number of unemployment, health and accident policies taken out in the first three months of this year doubled compared to the previous quarter.

The cost of coverage depends on your health and lifestyle, whether or not you smoke, and the type of work you do. But as an example, a healthy 45-year-old non-smoker earning £45,000 a year could get income protection worth £2,000 a month until age 65 at from £27, with payments starting three months after their first stop. work. They could get life insurance from £21 a month, which pays out £250,000 if they die within 25 years.

2) Protect your mortgage

If you lose income or house prices fall, it may be more difficult to remortgage. So if you’re worried, it might be worth getting a good deal now. Planning ahead can be helpful regardless, especially if interest rates continue to rise.

Jamie Lennox, Director of Advisor Dimora Mortgages, says: ‘If you have any doubts about your job security should the economy deteriorate, fix your mortgage so you can budget safely knowing your repayments will win out’ not go up.’ He adds that if you know for sure that your household finances will be affected, lenders will factor that into their lending decision. Imogen Sporle, head of term finance at specialist broker Finanze, adds: “If we see property prices falling and clients slide into or near negative equity, they will find it difficult to remortgage. , although there will almost always be a lender who can help.

“We can all hope for the best, but it’s a good idea now to start planning for the worst. Those savings you were going to use for a new car might now be worth keeping in the bank to pay off some of your mortgage when you refinance at the end of your fixed term.

Beware of prepayment charges if you already have a fixed rate mortgage, although in some cases it might be a good idea to pay them to get a good deal. You can also start shopping a few months before your current offer ends.

3) Diversify your income

In an economic downturn, it can be helpful not to rely on just one source of income, such as your job or your investments. You could diversify now to build resilience.

Claire Flynn, mortgage expert at Money.co.uk, suggests taking on a tenant to make money from a spare bedroom. “You can currently earn £7,500 tax-free a year on the government’s Rent-a-Room scheme,” she says.

“A lot of people do this and in a competitive rental market it should be fairly easy and could take the pressure off.”

Other options include having a side hustle – in other words another way to earn money, like crafting and selling crafts or renting out your driveway. Capital release is another option if you own your home and need to increase your income. This can be helpful for retirees who are locked into fixed rate annuities and find their lifestyle becoming unaffordable. However, this is not a decision to be taken lightly.

Tom McPhail, director of public affairs at research firm The Lang Cat, said: “The equity release won’t be for everyone, it’s generally not suitable for young retirement ages.”

“However, many people could benefit from it. Those who are asset-rich but income-poor should research whether this might be a helpful solution.

4) Reduce your bills

There is little we can do about soaring energy prices, which are expected to rise further in October to almost £3,000 on average.

However, you can find ways to use less. Insulating your home can help reduce your energy bills by hundreds of dollars. A little draft protection can also make all the difference. Do it now while the sun is shining.

Visit gov.uk/improve-energy-efficiency for ideas of what you can do and to check if you may be eligible for a grant.

5) Protect your investments

Investors struggle with volatility and falling portfolio values. But, you don’t lock in losses unless you sell. Until then, it is possible that in the medium or long term your investments will recover.

Therefore, think carefully before selling and make sure it fits your strategy and is not just a knee-jerk reaction caused by fear.

If you are still investing, remember that while the value of your existing holdings may fall, you are buying new ones at a cheaper price.

I locked in stability with a 7 year mortgage

Strategy: Joe Seager knows how much his monthly loan will cost

Strategy: Joe Seager knows how much his monthly loan will cost

Joe Seager is worried about the uncertain outlook for the economy and has therefore locked in stability where he can – by fixing his mortgage for the next seven years.

The 36-year-old, who lives in Lancashire with his wife and three young children, is relieved to have locked in a monthly price they know they can afford.

“My wife and I are both self-employed and it can be difficult to chase the bills and sometimes find a decent work-life balance,” he says.

“Holding our mortgage at 1.99% should help protect us at least in this area of ​​spending, against any economic problems.

“We are also making overpayments to reduce the balance and interest.”

6) Protect your retirement income

If you’re living on your savings, you might want to rethink your strategy. Tom McPhail explains: “With values ​​reduced by stock market declines, you will need to sell more investments to generate the same level of cash. But, once they’re gone, they’re gone. Instead, as much as you can, try to live off the income generated by your investments, such as dividends from stocks and interest from bonds.

Becky O’Connor, head of pensions and savings at wealth management platform Interactive Investor, adds that those considering withdrawing their tax-free lump sum of 25% from their pension should think twice.

“It might be best to delay the withdrawal if you can and if you take it, be very careful about what you spend,” she says. “If you’re taking money to remodel your house in the hopes that it will increase its value, be careful.

“In a housing market that also looks set to transform, home improvements may not generate the return on investment they did five years ago.”

7) Claim what is yours now

Claim all the benefits to which you are entitled. Even if you’re managing now, you might be grateful if things go wrong.

“In good times, we may think we can afford to let things go and don’t actually need to go through the process of applying for discounts and perks,” O’Connor says. “But in tough times, you’ll be glad you did.”

The government has a tool to check the benefits you may be entitled to. Go to gov.uk/benefits-calculators.

If you’re having trouble paying your loans and bills, contact your suppliers as soon as possible. In total, 52% of borrowers in financial difficulty wait more than a month before seeking help.

Of these, more than half regret not doing so sooner, according to new figures from the Financial Conduct Authority. Citizens Advice and debt charity StepChange can also advise you if you are struggling.

8) Dig up your old vouchers

UK households are wasting millions of pounds on unspent vouchers. If you have some in a drawer somewhere, now might be a good time to use them. Some vouchers have an expiry date after which they lose all value. Also, if the retailer goes bankrupt, the vouchers may not be honored.

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