After a particularly challenging 2022, both financially and politically, you might be pleased to see the year draw to a close. That said, figures from the Confederation of British Industry (CBI) don’t provide much to cheer about as we begin 2023.
In December, it revealed that Britain’s economy is expected to contract by 0.4%, meaning the UK will be in a recession. With this in mind, you might be wondering what you can do to protect your wealth from the effects of an economic downturn.
If so, you may be interested to learn that the start of the year is an excellent time to take stock of your wealth and create some good financial habits, which could help recession-proof your money. Discover eight that could help you become savvier with your cash during these economically challenging times and beyond.
1. Check your money more regularly
Getting into the habit of checking your finances at least once a month will make it easier for you to keep on top of your money. This means it will become a task that takes a couple of hours, not one that takes all day because you’ve put it off for six months.
Not only does it make keeping on top of your money easier, but it will also allow you to spot and act upon any irregularities with your accounts more quickly. For example, you might’ve been scammed and hadn’t realised.
2. Re-assess your outgoings
If you haven’t taken a good look at your spending, the start of the year is a good time to do so. Even small outlays such as a £3 coffee on the way to work can add up, and while you may be able to comfortably afford it, you may want to consider whether it really represents good value.
Check your online subscription services to ensure you’re not paying for something you hardly use or had forgotten about.
3. Work to a budget
Budgeting is the cornerstone of good financial practice, as it allows you to manage your money more effectively. Understanding your income and outgoings prevents a financial mishap that could result in an unforeseen debt or charge when you can’t meet your commitments.
This also means that you won’t have to rely on credit cards or loans to meet your overheads, which can be extremely expensive.
4. Reduce your debt
In December 2022, the Bank of England (BoE) increased its interest rate to 3.5% to help reduce inflation, which means the cost of borrowing is likely to go up. This means that if you have some types of debt, such as credit cards, you could spend more to service them.
Paying down outstanding debts by as much as you can every month, or clearing them completely if you can, will be a savvy financial decision. It means you’ll pay significantly less interest and help improve your credit score.
5. Avoid impulsive purchases
If you’re an impulsive buyer and then suffer from buyer’s remorse, you might want to consider using the 30-days rule. If you see something you’d like to buy, instead of going ahead wait 30 days.
During this time consider carefully if you really need it, and if you feel you do by the end of the period, go ahead and buy it.
6. Keep your “emergency fund” topped up
The Covid pandemic highlighted that life doesn’t always go to plan, which is why it’s important to have an adequate “emergency fund” to keep you financially afloat when life throws you a curve ball.
Typically, it should have 3 to 6 months’ worth of expenditure and be kept in an easily accessible account. That said, the amount you put by depends on your circumstances. This helps ensure you can meet your financial commitments if something unexpected happens, or pay a major expense – such as replacing a boiler that’s blown up – without relying on expensive loans or credit cards.
7. Consider investing your money
If you would like to expose your money to greater growth potential you might want to consider investing it. Research by Schroders backs up the fact that historically, the stock market has tended to provide greater growth potential than cash savings.
It revealed that between the start of 1952 and the end of May 2022, UK equities returned 11.7% a year on average while cash averaged 6% a year. All that said, please remember that past performance is no guarantee of future performance.
While you could invest with a lump sum, you might also want to consider making regular contributions into investments. Doing this may help boost your money’s long-term growth potential.
8. Think about your retirement
The importance of considering your lifestyle in retirement and regularly assessing your pension pot to ensure it will support the standard of living you want cannot be overstated. Meeting with a trusted financial planner on a regular basis to do this is a clever way to achieve the retirement you dream of.
They will be able to confirm whether your pension is likely to provide the lifestyle you want, and if not, what options are available to help you boost it to where it needs to be.
Get in touch
Another good habit for 2023 and beyond is to work regularly with a financial planner. Creating an ongoing working relationship with a planner you can trust could help you create a financial strategy and keep it on track, so that you can achieve your goals in life.
Furthermore, it could help you protect the wealth you already have. If you would like to discuss how we could help you adopt the above and other helpful financial habits, please email admin@stonegatewealth.co.uk or call us on 01785 876222.
Please Note
This article is for information only. Do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, and levels, bases and reliefs from taxation may be subject to change.
Investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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