On 12 August, the UK officially entered a recession for the first time in 11 years. Since the coronavirus pandemic first took hold of the country back in March, the impact has been devastating – between April and June, the UK economy shrank by 20.4% compared to the first three months of 2020.

As lockdown eases and businesses begin to reopen, there’s some hope that the economy will start to bounce back (the ONS reported an 8.7% growth to the economy in June), but the impact of those early stages of lockdown will still be felt for some time. Indeed, when the furlough scheme ends in October, there’s fears that up to two million jobs could be lost.

With so much uncertainty in the news right now, it’s overwhelming to try and make sense of how these big stories might affect your personal situation. Not only are many of us confused about what a recession actually means for our personal finances, but plenty of people are also unsure about what the best course of action is when it comes to preparing themselves for a recession. 

With this in mind, we reached out to three women who work in finance to find out more about how a recession might impact us, and what we can do to prepare in the meantime. Here’s what they had to say. 

“A recession has an impact on the whole economy which affects everyone both individuals and businesses,” explains Bukiie Smart, author of The ABCs of Personal Finance and founder and editor of Save Spend Invest, a personal finance platform which helps millennials learn how to manage their money.

“Job losses and falling income are usually the most significant impact on an individual level. Taxes could also increase, as well as the cost of living. This means that you may not be able to afford the same or similar things as you did before. Your bills may increase and you may not have the income to fund your lifestyle the same way.”

Clare Francis, director of savings and investments at Barclays, agrees: “Many people’s personal finances have already been affected because they’re still furloughed or have lost their job and, for many, there is a sense of uncertainty about the future.”

Francis adds: “But it’s important to remember that the changes created by coronavirus could be the start of new opportunities. Many of us have used lockdown to be more entrepreneurial by getting involved in side hustles, or using transferable skills to secure new jobs whilst on furlough in the sectors that are doing better to top up income. Therefore, it may be worth thinking about your transferable skills and how you market them just in case your circumstances change or you find yourself inspired to take a different path.”

“The word recession can bring about fear and panic, and that’s understandable,” explains Shirley Denchie, founder of Finance Girl Inc, a personal finance platform that helps millennial women to take control of their finances through better money management, saving and investing. “Focus on what you can actually control.”

Alongside staying informed about the recession and keeping an eye on the situation in your industry, focusing on what you can control means working out what you define as an essential, Denchie explains: “Establish a ‘bare bones budget’ which only covers the essentials. Having a ‘bare bones budget’ will cut out the unnecessary expenses, determine where money is supposed to go, and help you identify spending areas you can cut back on.”

For Smart, alongside cutting down on non-essentials, now is the time to establish an emergency fund and commit yourself to saving.

“Save aggressively. This is the time to cut out all non-essentials, especially if you’re in a job market or industry that is volatile,” she says. “Think about if you lost your job tomorrow and couldn’t get another for up to three months – will you be OK? If not, start saving up an emergency fund and keep available cash in the bank.”

As well as cutting out non-essentials and being aware of your spending, Francis also recommends giving yourself a “financial MOT” – an analysis of your financial habits which will help you to be more informed over the coming months.

“With the uncertainty set to continue, now’s a great time to give yourself a financial MOT – if your spending has reduced during lockdown, what have you stopped buying and what can you continue either managing without or spending less on now restrictions are lifting?” Francis advises.

“Go through your direct debits and standing orders and really challenge yourself as to whether you need what you’re paying for, or if it is something you can cancel. While the amounts themselves may seem small, you’ll be surprised how much £10 or £20 here and there adds up. Also look at all your household bills and check whether you could save money by switching to another provider.”

Francis continues: “The crisis has been a real eye-opener for many of us – it’s brought into focus the importance of having money savings to fall back on but I think it’s also made a lot of people get a better understanding of their spending habits so they now realise where their money was going.” 

We know cutting down on our spending is a great way to save money – but is there anything else we should be doing over the next couple of weeks to put ourselves in a better position in the longterm?

Following on from your financial MOT, Francis recommends taking this time to try and pay off any existing debt (if you’re able to) and continuing to build your savings: “Once you’ve gone through your finances and worked out how much money you’ll save each month, make sure you put it to good use.

“If you owe money on credit cards or have a loan, consider paying these down as that will ease the burden and financial stress should your circumstances change for the worse. If you don’t have debts, or once you’ve cleared them, rather than leaving your surplus cash sitting in your current account – move it into a savings account. You’re less likely to fritter it away and you can start to build that all-important savings buffer.”

Francis continues: “As lockdown starts to lift, try and keep yourself accountable for where your money is going and make sure the temptation to shop isn’t coming at the expense of saving. An easy way to help yourself do this is by saying no to impulse buys. If you see something you want, don’t let yourself buy it there and then but go away and think whether you really need it or whether you would keep the money set aside for the future.

“Also don’t forget the basics when it comes to saving hacks. It may seem so obvious that we overlook it but simple things like doing a meal plan and a weekly shop, vs. ad-hoc trips to the supermarket will save you money. And, think about where you are spending your money and try and support local businesses where you can. While it’s not the time to be frivolous, some spending is essential and our spending helps keep the economy going – it’s all about finding the balance.”

As well as being sensible about what you’re spending, Denchie suggests that now might be the time to find new ways of bringing in money.

“Add new streams of income – even if your job is stable,” she says. 

“Use one of your skills (or develop one) to diversify your income. There is no limit – I have seen all sorts being marketed since lockdown. Any skill or talent you have could potentially be turned into an extra way to make income.”

Finally, Smart advises continuing to keep an eye on your outgoings, and making any adjustments if necessary. 

“Look through your bank statements to identify any leaks such as subscriptions (gym etc) that you can get rid of to help give you some additional income back, speak to your bills provider to renegotiate your payments and rates going forward if you need to and think about skills you can monetise to add another or more income sources,” she says.

“Above all, don’t panic – it’s all about planning your finances and being disciplined in your financial daily decisions.”

Speak to a Financial Conduct Authority registered financial adviser before taking financial advice, and think carefully before making any decision.

Images: Getty