Managing Your Finances Through the Coronavirus Pandemic
The COVID-19 pandemic has impacted virtually every facet of our day-to-day lives. And unsurprisingly, it is the source of a great deal of anxiety – chief among the concerns people have in relation to the virus are their health and finances.
People are naturally worried about their health, and that of their loved ones. Yet even for those who are less concerned about the physical impact of coronavirus, there remains widespread fears over how well people will cope with the financial ramifications of the pandemic.
The UK-wide lockdown has resulted in many industries grinding to a halt and, consequently, many people being furloughed or made redundant.
In early April the British Chambers of Commerce released a new business confidence tracker; its survey of 600 UK firms showed that a third were set to furlough at least 75% of their workforces.
Similarly, the self-employed are also seeing work dry up. It means that vast portions of the working population now find themselves in a position where their earnings may reduce – either slightly or significantly – or, worse yet, freeze entirely.
Belle About Town spoke to John Ellmore, director of KnowYourMoney.co.uk, about how we can all manage our finances during this unprecedented time.
John says: “The Government has introduced a number of financial schemes to support both consumers and businesses. Though not perfect, this support ought to be praised; and I would be confident that as the situation evolves, new measures will be implemented to help people weather the storm.
“Nevertheless, for now it is vital that people understand both how their finances may be affected by the COVID-19 pandemic and what they can do to manage the situation effectively.”
How will spending habits change?
The first thing to note is that while people’s earnings are at risk, spending habits have also changed drastically. Eating in a restaurant, going to the cinema, having drinks at the pub, getting a haircut, booking a holiday – these are all common expenses that will all but disappear.
Interestingly, at the end of last month, the Office for National Statistics released its annual ‘Family Spending in the UK’ report, which covered the 12 months to April 2019. One may say that, given the current situation, this data holds little relevance – I would dispute that. By benchmarking what “normal” expenditure looks like for households across the UK, we can assess which areas might increase or decrease.
For example, average weekly household spending in the UK during the 2018-19 financial year was £585.60. Of this, transport, housing and recreation and culture were the largest components of household spending, together accounting for 44% of total expenditure.
This is significant. Yes, rent and mortgage payments – typically people’s single biggest monthly outgoing – will continue. But transport costs along with cultural and recreational spending (which combined accounted for an average of £157.10 a week) will, in most cases, drop to a fraction of their usual amount.
The reduction in what are very common forms of expenditure should offer all consumers a little more financial breathing room than under normal circumstances. And there are other things that people can do to ensure they are suitably prepared for what looks likely to be a lengthy period of economic turbulence, here are three pieces of advice.
- Perform a financial audit
First things first, everyone should take the time to perform an in-depth review of their own finances. How much do they have coming in; how much do they have going out. How long could they manage if their income fell by 20%, 50% or 100%. Ask the difficult questions and assess your financial health.
Thereafter, consumers must scrutinise their spending. Do you, for example, have expenses that could be cut – memberships you cannot use, subscriptions that are not necessary, or services that can perhaps be put on pause? If so, taking action to halt this money leaving your account could help protect you in the long run.
- Consider switching
Equally, it is important to consider switching suppliers. The ONS states that UK households spend an average of £34.40 a week – or £1,788.80 a year – on gas, electricity, water and other fuels. Yet, according to Ofgem, the average household can save £300 per year by switching gas and electricity supplier.
Add to these things like home, building and contents insurance, and there are significant savings to be made when a policy is up for renewal.
Many people have a little extra time in the evenings and on weekends as a result of self-isolation; this can be used to conduct online research and explore if there are better deals available.
- Stay calm, shop smart, be prudent
Underpinning all of the above, it is essential that people remain calm and make sound decisions. Consider your options, do research, and speak to experts where necessary.
Ask yourself how necessary certain purchases are – if you are worried about your finances in light of the coronavirus pandemic, it might not be smart to buy a new TV, pair of trainers or a kitchen appliance. This point may sound obvious, but with people cooped up in their homes and looking for a pick-me-up, purchases like these are remarkably common.
It is also important to make little changes that could save a lot of money. For example, the Energy Saving Trust (EST) recently released research that showed if UK households made small changes, such as turning appliances off rather than keeping them on standby, they could collectively save £690 million and curb the release of 1.3 million tonnes of carbon emissions.
And finally, households must use the items they already have. On 21st March 2020 the UK Government announced that an extra £1 billion worth of food had been bought by the general public in the space of three weeks as a result of stockpiling. It seems that the panic buying phase has passed – so now is the time to tighten expenditure and begin eating through the stockpile.
Weathering the storm
Ultimately, making sensible and considered decisions over the coming weeks could have a notable impact on the financial health of households across the UK. This, in turn, will put them in a stronger position to weather the fallout from the coronavirus lockdown.
If people are feeling anxious about their financial situation, and in particular uncontrollable debt, I would urge them to reach out to the likes of the Money Advice Service, National Debtline and StepChange Debt Charity.
- John Ellmore is the director of KnowYourMoney.co.uk, an independent financial comparison website that was launched in 2004. Run by a dedicated team, Know Your Money’s goal is to provide clear, accurate and transparent comparisons for a wide range of financial products.
