Unfortunately, it appears that an oncoming recession is unavoidable. Recent figures have shown that the UK economy shrunk by 19% between March and May. Given that the UK went into lockdown in mid-March, this result is not exactly unexpected, but the personal finances of many consumers will still feel painfully strained – recent research from KnowYourMoney.co.uk shows that almost a third (31%) of UK adults have seen their income decline as a consequence of the coronavirus pandemic.

However, it is possible for consumers to regain control over their finances.  What’s more, it is actually simpler than many assume. John Ellmore, Director of KnowYourMoney.co.uk, outlines the necessary steps below.

A review of financial health

To gain a comprehensive understanding of one’s financial health, a thorough audit of finances is vital.

The best place to start is by reviewing bank statements and making a note of all incomings and outgoings. Though it may seem simplistic, it is a crucial tactic in identifying and eliminating problematic spending. For example, more than a fifth (23%) of UK adults were guilty of overspending during the lockdown period, but many might not realise they are spending so much. Taking note of such spending will help consumers to acknowledge such overspending and cut it out.

A financial audit could also encourage consumers to shop around for better deals on a variety of products, from groceries to home insurance. So many consumers fail to shop around for a better deal – 12.9 million consumers automatically renew their home insurance without investigating alternative suppliers, for instance – and consequently miss out on savings. Comparison sites are a great place to start; they save consumers time by searching the internet for numerous providers and present them clearly to consumers. All they need to do is choose an option that best suits their needs.

To gain a comprehensive understanding of one’s financial health, a thorough audit of finances is vital.

Protecting credit scores

Credit markets tighten during recessions, which means it can be harder for consumers with a less than desirable credit score to successfully apply for a mortgage, loan or credit card.

However, it is possible to strengthen your score even in a tough economic climate. The best method to improve credit scores is to keep up with regular debt repayments, such as credit cards and utility bills.

That said, there may be times where finances are particularly tight and with larger repayments, such as mortgages, it can be difficult to keep up with regular repayments. If this is the case, consumers should consider speaking to their provider about a mortgage holiday, or temporarily making interest-only repayments. These options could reduce monthly household bills and offer consumers some financial breathing space. However, consumers should always consult with their provider before choosing these options, as they could negatively impact their credit score. These options can also result in people paying more in the long-term.

Start an emergency fund

Perhaps the most important course of action is to start an emergency fund. Usually containing between three to six months' salary, this fund can offer a financial cushion should consumers suddenly find themselves being made redundant.

The best type of accounts for these funds are usually easy access savings accounts. They enable savers to instantly access their money when they need it, without any charges or losing interest. These accounts don’t usually offer competitive interest rates, but some can offer over 1%, so consumers should conduct thorough research before they choose an account.

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An important element of building an emergency fund is consistently saving – after all, 28% of consumers were guilty of not saving enough money during lockdown, according to our research. So, consumers should try to set up a direct debit between their current account and savings account, making it easier to keep money to one side.

Additionally, some banks give customers the option to round up on purchases, and place the difference in their savings account; for example, if a customer bought a T-shirt for £14.20, they have the option to round the price up to £15, and place the extra 80p into their savings.

Ask for help 

Consumers must always remember that help is available if they find the financial burden too much. If it’s financial help they need, there are various schemes, such as mortgage help schemes, that can off assistance. Alternatively, debt charities such as StepChange can offer invaluable emotional support and help consumers get their lives back on track.

Financial management can seem overwhelming at the best of times; however financial anxiety has been amplified in the wake of the coronavirus. However, it is vital that consumers don’t panic. By taking simple steps, consumers can work to protect their finances against recession, and give themselves some much-needed peace of mind.