Many economists continue to warn that we could be heading for a second recession. We may have just emerged from one of the worst downturns ever but conditions are right for a scenario known as 'W-shaped' or 'double dip' recession. The economy would recover, briefly, only to dip back down again. If this happens how well placed will you be to weather the storm?
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It's time to batten down the hatches but just how can you defend yourself against difficult economic times? Here's some advice:
The best way to make use of your cash if you have debts is to pay them off. More and more of us are realising, with interest rates low, that paying off credit cards and loans will be of greater benefit than saving. These debts can have very high rates of interest, far higher than your savings, so paying these off first makes sense. It is also prudent in the face of any future downturn not to be lumbered with debt. Even if you can't clear all your credit cards look around for the best transfer deals, you could still trim those outgoings.
It's a good idea not to commit to any further debt. Avoid large monthly subscriptions and hire purchase agreements. Gym memberships, TV packages and large new purchases will eat into your funds and could cause you difficulties in tougher times. Once clear of debt you should look to build up a cash buffer.
Your savings aren't as safe as they use to be. Even the top banks can get into trouble, so where you put your money matters. A good place to consider investing in is National Savings & Investments - a government backed savings bank that allows you to save up to £15,000 tax free and NSI also guarantees your savings to better the rate of inflation. Ideally, you should aim to have three months' salary to fall back on. Not everyone can save a small fortune but if you do have cash to play with then don't put too much in one institution, certainly no more than £50,000.
Your biggest monthly commitment is probably your mortgage. Reducing your mortgage will help you if a recession bites. This may also help you when you to get a better rate of interest when you come to remortgage. The interest you pay means you are best using your capital to reduce that debt.
Consider payment protection insurance. Some of these can be very expensive when bought with the loan so try other, stand alone deals; these are usually much more competitive. Should redundancy occur then you can be reassured your repayments will be covered. Always check the small print.
If you are self employed make sure you put enough money away to pay your tax. You should be prepared to save around a third of your income. Alternatively, buy tax certificates, these can only be used to pay your tax bill and will stop you dipping into the funds you've set aside.
Do you have any recession-proofing tips and hints? Share them here by leaving a comment.