In this exclusive guest blog post, our partner Conversation of Money outlines some key factors and top tips for you to take into consideration when managing your finances following the coronavirus pandemic.
Guest Blog by Conversation of Money
2020 will forever be remembered as the year of the coronavirus. We have seen entire countries ground to a halt under lockdown measures and governments across the world introduce initiatives to protect public health and safeguard jobs.
I recall the lockdown measures being announced back on March 23 and the wave of uncertainty I felt. I had recently joined a new company to head up a new project, but it quickly became apparent that the project would not be viable with the social distancing measures to come. I was made redundant.
If you are reading this, you may have felt similar emotions. Redundancy is still a possibility for millions of people as the furlough scheme winds down. Faced with a crowded job market and contracting pay packages, many are feeling financial pressure.
Businesses across the country have also felt the impact of the lockdown measures. COVID-19 has seen the business sector scramble to streamline business processes and operations, to enable work from home. They have seen turnover slump and profits take a hit.
In April, we saw GDP fall by 20.4%, the largest fall since monthly records began in 1997 according to the Office of National Statistics. We have seen sweeping support packages introduced by the government to support businesses. It is said that the cost of the lockdown could be as much as £298bn just for this financial year (April 2020 to April 2021), according to the Office for Budget Responsibility (OBR).
In times like these, it can be easy to bury your head in the sand and hope for the best. Looking at your finances can be uncomfortable, especially if you are unaccustomed to looking at your numbers regularly.
So, what can you do to manage your finances better following the coronavirus pandemic?
Tip 1 – Have a robust budget
A budget can often have a negative connotation of restriction, but it can be a powerful tool in providing clarity and peace of mind.
The purpose of a budget is to help you understand what you have coming in and what you have going out in expenses. It will help you draw a picture of where your money goes and what surplus or deficit you have.
There are many ways you can create a budget, some people prefer a spreadsheet others preference a piece of A4 and a list. Whichever your approach, a robust budget is only as good as the detail that goes into it.
To create a robust budget, I recommend being as thorough as possible.
Go over your bank statements for the 12 months and note every regular payment in that period. Often, we miss services and subscriptions that do not appear on our list of direct debits. Services like Amazon and Spotify are prime examples. Note every expense and categories them.
Once categorised, you will have an overview of the following.
Essential Expenditure, the things you have to pay for like your mortgage/rent, council tax, gas and electricity, finance agreements, food and so on.
Non-Essential Expenditure will be things like clothing, entertainment, eating out and anything else that is not essential.
Whatever is left over is disposable income. If you find yourself in a position with disposable income, I have another tip for you shortly.
If you find yourself with no disposable income, my second tip is an important consideration.
Tip 2 – Tighten your belt.
Putting your finances on a diet can be painful, especially if you have children in the family, but it’s important to look at this as a means to an end rather than a draconian measure of restriction.
So, where do you start?
Utility Bills – most households can make savings on their utility bills by revisiting the marketplace. I used Look After My Bills to save £30 a month (£360 this year) on my gas and electricity. Other providers like Utility Warehouse offer a similar comparison service.
Move to SIM-only deal – modern-day phone contracts have become rather expensive, especially with the newer range of smartphones. If you are coming towards the end of your contract, consider a SIM-only deal. I recently saved £50 a month by doing this, saving £600 this year.
Cut back on non-essentials – one thing lockdown has shown us is that we can survive without the non-essentials. Clothing, eating and entertainment are all areas where you can make monthly savings.
Tip 3 – Build an emergency fund
An emergency fund is a pot of money you can fall back upon should you suffer an interruption to your income. Typically, an emergency fund will be anywhere between three to nine months of your monthly expenses (essential).
For example, if your essential expenses are £1,000 a month. You will need between £3,000 and £9,000 in an emergency fund.
If you have disposable income, then you already have some funds you can point towards this. However, if you do not have disposable income, my second tip will get you on the way.
Post this pandemic an emergency fund has to be a priority for everyone. We don’t have any guarantees in life, but we can be sure that the unexpected will happen.
If the lockdown has done anything, it has highlighted how exposed we are to forces beyond our control. We all hope for the best but often fail to plan for the worst, but the truth is, there is a lot we can control. We can control how we manage our finances and how prepared we are for an unexpected financial burden. It requires pre-thought and an exuberant optimism for the future.
If you would like to learn more about how financial coaching can help you take control of your finances, feel free to contact our partner Conversation of Money on 07506 090944.