The swift and all-encompassing effects of the Coronavirus pandemic has forced many people into previously unchartered territories, especially when it comes to money. The pandemic has had an unprecedented effect on personal finances in the UK. Savings have been a vital lifeline in helping to keep people from going under financially, while the Government’s furlough scheme has supported many employee salaries. However, the furlough scheme will end on November 1st to be replaced by the Jobs Support Scheme.
Recent studies show that 35% of people in the UK are worried about being able to pay bills if a second national lockdown materializes, and 33% say they will have difficulties in affording essentials for their families. This is a worrying time financially for everyone, but there are steps that can be taken to prepare personal finances that can go a long way to ensuring our finances are in the best shape possible shape:
- Focus on existing debts
Use any spare money to pay down any expensive debt you have, such as credit cards or personal loans. Begin with the debt that has the highest interest rate and start paying that off first, before moving to the next highest interest rate. Reducing this burden off your finances could really help if times get tough. If there is simply no spare cash to funnel into paying off debt, your focus should be on reducing the cost of the debt. Interest rates are at record lows right now, which means the cost of debt has fallen too. People with better credit scores will find they have more options, but shifting debt to a zero per cent interest credit card or a personal loan on a cheaper interest rate is a great option, meaning you can use more of your capital to pay down the actual debt rather than just servicing the interest. Interest-free overdrafts and payment holidays on loans and credit cards are also available from lenders but be aware that payment holidays will still charge interest, so it can cost more in the long term.
- Build up an emergency savings pot
It’s always good advice to build up an emergency pot of cash that can be utilized if income is reduced or unexpected costs suddenly appear. In the UK one in eight adults have absolutely no savings at all, while 45 per cent of the population have less than £2,000 in cash, meaning a large proportion of the country could be financially exposed during a crisis. Aim to build up between three to six months of outgoings; add up all your bills and work out how much you need. If this is just not possible then save any amount that you can. This money should be readily available, so use an easy-access current account rather than one where access to the money might be restricted.
- Shop around for the best deals on all your services
Generate extra cash each month by making sure you’re paying the cheapest price for all your services and utilities. Start firstly with the big expenses such as mortgage payments. Check you’re on the most competitive mortgage rate, which could mean savings of hundreds of pounds each month. Extending the term (or the length) of your mortgage can ensure the monthly repayments are lower. This method will cost more in the long run, as you’ll be paying interest on the debt for longer, but it can be an effective strategy for saving for the short term. Next, look at any unnecessary direct debits or bills that have increased. Cheaper energy and streaming/satellite TV deals are available – access new, cheaper deals by checking the many price comparison websites and see what deals are out there.
- Cut out the ‘Invisible Spending’
Spending money regularly on things that are simply not needed is very common. With cash payments becoming less frequent, and online shopping and card transactions on the rise, it can be very easy to lose track of just how much we spend on unnecessary items. This is Invisible Spending. Take a look at the previous few months’ bank statements and work out where your money is going. You may be surprised at how much money is being spent on items that are just not necessary. Once the amount of invisible spending has been clearly identified, the next step is to cut it down, or to completely eradicate it. This will free up more cash to either ensure the essential bills can be paid, or to contribute to the emergency savings pot.
- Explore alternative sources of income
Generate extra income by looking at the possibility of a second job, or by learning a new skill. With job security declining, an alternative source of income can provide extra revenue at a time when it is most needed. As well as this, online opportunities to access extra income are plentiful, such as selling old clothes, household items or collectibles on one of the many buying and selling websites available on the internet.
Although this is a hugely worrying time, investing some time and thought into adjusting your finances and constructing a viable financial plan could prove crucial in successfully navigating these latest economic challenges