Amy Knight
Following two consecutive quarters of negative growth, the UK slid into a technical recession at the end of 2023 which could put jobs at risk and increase unemployment. However, workers concerned their role could soon be on the line can act now to shore up their finances, say money experts.
Since the start of 2024, several big-name businesses have announced layoffs, including department store John Lewis, Barclays Bank, and the broadcaster Channel 4. Smaller businesses are also affected, and unemployment is expected to increase over this year, as the pain of higher interest rates saps some firms’ strength.
Research by the Chartered Institute for Professional Development (CIPD) has found a trend for businesses planning on reducing headcount to cope with higher wage bills.
However short-lived the recession is (or is hoped to be), planning how you can meet your financial obligations if you lose your income is a smart move – for your money and your mental health.
Below, two personal finance experts share their wisdom on how to keep calm and bolster your financial backup plan.
Step One: Scrutinise your budget
Managing your money with confidence starts with knowing how much your essential outgoings add up to. Rent or mortgage payments, bills and groceries usually fall into this category, but it’s sensible to factor in fuel, public transport, and childcare costs too. If you’ve never done a budget before you can try our step-by-step guide to budgeting.
We all categorise our “wants” and “needs” differently; what feels essential to one person might feel less important to another. Conducting a detailed analysis of your monthly expenditure lets you highlight non-essential spending that could be cut from your budget if you needed to.
“The more you know where your money goes, the quicker you’re able to react if you’ve got a financial situation such as redundancy,” says Matt Beck, an independent financial advisor at Chase de Vere.
Beck told NerdWallet that many consumers need to be made aware of redundancy clauses in contracts such as gym memberships. “You’d be surprised how many [gym] contracts you can potentially end on quick notice if you have been made redundant,” he says. To understand your rights when it comes to cancelling services, you can visit the Citizens Advice website.
Step Two: Get debts under control
Clearing expensive debts (such as high-interest credit cards) can increase your financial security, making it easier to weather a recession. “If you’ve got the threat of impending redundancy, look at what debts you might have, because those should probably be paid off as quickly as possible,” suggests Octopus Money Coach Emma Gosling.
Whilst paying down borrowing may increase your outgoings in the short term, consolidating debts while you still have a regular income could save you stress later on. “Having debt and then being made unemployed makes it trickier for you to get good repayment deals in the future,” Gosling explains.
Homeowners worried about how they’ll manage their mortgage payments while unemployed should check if they have any protection in place, such as mortgage payment protection insurance. They can also speak to their lender about any support it can offer.
However, asking your lender for a payment holiday would generally be a last resort, as any gap in payments may be marked on your credit file. “In an ideal world, you’d keep maintaining those payments because it will impact your credit score and ability to borrow,” says Beck.
If you’re fortunate to have savings pots that you can dip into to cover your mortgage, it’s worth seeking professional advice before draining them, he adds.
Step Three: Build your emergency fund
Your emergency fund is a crucial part of your redundancy survival pack. But, putting money aside for unexpected circumstances is something not enough people prioritise.
“Regardless of whether we’re thinking about redundancy or any financial difficulty, whether that’s ill health or the boiler blowing up, having an emergency fund is really important,” Beck says.
He and Gosling both recommend saving three to six months of essential outgoings to ensure you can continue to meet your financial responsibilities. It’s best to keep this in a separate bank account where you’re not likely to touch it, Gosling explains.
Step Four: Get the facts (and claim what you can)
Some employees who are made redundant are entitled to be paid during their notice period. However, the length of your notice period may depend on your employment contract and how long you’ve worked at the company. If your job is not currently at risk but recession rumours are rumbling through your workplace, it may be worth digging out your employment contract or speaking to HR to find out what your redundancy notice period would be.
If you’ve worked for your employer for two years or more, you’re entitled to statutory redundancy pay, which can help tide you over while you look for a new job.
Whilst some employers will offer more than this, the government’s statutory redundancy calculator enables you to work out the bare minimum you should receive, so you can manage your finances accordingly.
You can also use the benefits calculator on the gov.uk website to check your entitlement to benefits such as Universal Credit and the new style Jobseeker’s Allowance (JSA).
Should you feel you’ve been made redundant unfairly, Citizens Advice and ACAS can offer guidance. Families can also contact Pregnant Then Screwed, a charity that supports pre and postnatal women with employment issues, and parents who need flexible working.
Reminder: Don’t make decisions you can’t undo
Even with several months’ paid notice, being made redundant can leave a dent in our self-esteem and make rational decision-making harder. Worrying about money can harm your money management, according to our experts.
If you’re due a large severance payout from your employer, it may be tempting to use that cash to pay down a large chunk of your mortgage, put a lump sum into your pension, or pass on some money to family members. However, Beck cautions against making such moves until you’re settled in a new job. “Don’t make those big decisions that you can’t unwind,” wait until you’re “through your probation period and have a bit more security,” he says.
The recent news that the economy fell into a recession in December will do little to reassure companies or their staff, however “mild” the slump might be. But, taking proactive steps to improve financial resilience can minimise stress while helping to protect your financial future.
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