If I hear the phrase ‘unprecedented’ one more time, I may scream.
But truly, what else can you call this?
I hesitate to even put any numbers to the crisis as I write this, as I know they will be sorely out of date by the time you read it. Suffice to say that many people around the world are dying. Many more are ill. The NHS and health systems around the world have been stretched almost to breaking point. And this is all just the direct health consequence.
The government-enforced lockdown to limit the impact of the virus has cost countless people their jobs. With schools closed, normal life and functioning is anything but normal. And consumers, especially travellers, are faced with myriad questions around what to do about money they’ve already paid out for services that they may be unable to use.
And although it seems the government is gearing up for a return to a new socially distanced version of normality in the coming weeks and months, the situation is still uncertain and therefore still has the potential to change.
And that’s before we talk about a ‘second wave’.
I’m not here to be a downer. But this is all to say that there is good reason to be concerned for your finances.
Instead of panicking, though, there are some simple actions you can take right now to try and ensure your finances are as protected as possible. I don’t have a view into anyone’s specific situation, so consider all of the following general information that you can adapt to your circumstances. I can’t guarantee that these actions will alleviate all of your financial concerns, but hopefully this guide can help you to be as prepared as possible for whatever lies ahead.
1. Protect your health (and the health of others!) to protect your money
Your future earning power depends on you staying healthy enough to earn. Don’t underestimate that. Likewise, your money being meaningful to you – for buying homes, taking holidays, throwing extravagant children’s birthday parties with live ponies – depends on you being healthy enough to enjoy it.
It goes further than that during this crisis though. The recovery and long-term prospects for the economy depend on all of us working to protect each other’s health. By working together to adhere to the government-recommended measures, we’ll be in a better position to reopen society and get back to some semblance of ‘normal’.
So make no mistake about it, health – our own health and the health of others – isn’t something that just healthcare professionals are worried about right now. People (like me) who sit around thinking about money all day are now thinking about health as well.
Your best bet here is to follow what the government is recommending:
- stay at home as much as possible
- work from home if you can
- limit contact with other people
- keep your distance if you go out (2 metres apart where possible)
- wash your hands regularly
Do not leave home if you or anyone in your household has symptoms.
You can see the full list of government recommendations here.
Is it surprising that this is our top recommendation to protect your money? Perhaps. But the fact remains: If you don’t have your health, your money isn’t going to mean much.
2. Take stock of your spending
In ‘normal’ times, we should all have a budget and a good picture of our finances in general. Some reading this may do exactly that, while others may be in varying states of financial organisation ranging from ‘I have a general picture of my finances’ to ‘I have no idea’.
Well, now is the time to get a good picture of your financial life. The reason is simple: if times get tougher, this could have you well prepared to make smart decisions that might make your money stretch further.
A good starting point is to take stock of your spending and regular expenses.
Start with your bills and recurring expenses. Here, we’re talking about your mobile phone contract, your gas and electricity bills, your rent or mortgage payment, your landline and broadband costs, your car insurance. Basically, anything that you have to pay each month.
These expenses are important because, for one, they include some of your most necessary expenses (like housing and electricity), but also because they’re the ones you have to actively think about reducing. That is, if you don’t take action to change your mobile phone plan to a more affordable one once you are out of contract, you’ll likely end up paying more than you really need to.
Make a note of which of these expenses, if necessary, could be cancelled, and which would be more difficult to cancel. For instance, a Netflix membership is a recurring charge that would be relatively easy to cancel. A mortgage payment would be much more difficult to cancel – and would have worse ramifications.
Once you have a good picture of those recurring expenses, consider your non-recurring, more discretionary spending. For most of us, this picture has changed a lot since the pandemic began. There are fewer nights out at the pub or at restaurants, though maybe a bit more spending on takeaways. And while our Amazon bills may have gone up, with the exception of groceries, bricks and mortar shopping has all but disappeared.
Non-recurring spending includes some very critical areas like food, but is also much easier to scale back on. Unlike unavoidable recurring expenses, if you choose not to actively spend in these areas, your money stays in your accounts. But it could definitely help to have an accurate picture of how much you spend on necessities, so you know how much you need to get by.
Once you’ve done this, you essentially have one half of your financial picture in view. Let’s move on to the next.
3. Understand your current and potential resources
Where does your money come from? Where could it come from? That’s what you need to get clear in your mind right now.
Full- or part-time work
In normal times, for many of us, our job income is our main ongoing source of money. For the fortunate, this may still be the main source of income.
However, due to the havoc wreaked by the virus, vast numbers of people are now out of work. For those left unemployed, that eliminates a huge financial resource, and makes the rest of this part of the exercise all the more important.
Important: The government has agreed to pay up to 80% of furloughed workers’ salaries, up to £2,500 per month, as part of the Coronavirus Job Retention Scheme. If your employer is in financial difficulty, rather than eliminating your job, they may be able to furlough you to take advantage of this scheme. Even if you’ve already lost your job, there may still be the opportunity for your former employer to take you back on and assign you furloughed status, so it could be worthwhile contacting your former employer to discuss this.
For those who have lost their jobs, accessing Universal Credit (UC) is an obvious first step. UC is aimed at helping meet living costs in a variety of challenging circumstances, including job loss (you can get more information on the GOV.UK UC page). While actively seeking employment is usually a requisite for accessing UC, due to the pandemic lockdown, that expectation has gone out of the window.
Of course, while UC may help those who are out of work, it may not be enough to cover everything or be available fast enough (the system has been utterly overwhelmed) to meet urgent expenses. So it’s important to assess other resources as well.
Gig work or odd jobs online
For some skill sets, there may be opportunities to find work online. This is unlikely to be a full solution, but sites like Upwork and Freelancer.com may help you find odd jobs that match your talents. Meanwhile, sites like Clickworker, Textbroker and Utest offer smaller jobs that can still earn you a few quid.
It is typically recommended that we all keep an ‘emergency fund’ topped up and ready for tough times. It’s often suggested that this fund should be able to cover three to six months of
living expenses. Because an emergency fund should be kept in ready cash or very short-term investments, this can be a frontline defence when other income sources are hit, and situations like the ongoing pandemic are exactly what it’s designed for.
Borrowing is, of course, an option, but should be considered carefully. For those with good credit, there are some compelling options. For instance, there are credit cards with introductory 0% interest periods on purchases that stretch more than two years. There are money transfer cards with introductory 0% periods of up to two years. Building debt during this time isn’t ideal, but cards like these could provide an emergency backstop without costing you a fortune in interest.
If you don’t currently qualify for a 0% interest credit card, a credit card with regular APR should be considered a last-resort method of borrowing. And even then, it should be used for as short a term as possible. That’s because the regular APR on most credit cards is far higher than other types of loans and could get you into debt trouble quickly.
Other options for borrowing, which should come with considerably lower interest rates than credit cards, include personal loans and, if you own a home, a second mortgage. Both of these are certainly options.
But taking on interest-bearing debt can have long-term consequences. So before choosing this option, make sure you’ve taken adequate steps towards reducing expenses – which reduce the need for cash – maxing out what government assistance is available to you, and taking up help like mortgage holidays and income support schemes.
Apart from an emergency fund, many of us have other forms of savings. These may include money specifically set aside for things like home improvements or a new car. Or they may be for retirement. In certain scenarios, these are also natural sources of funds to keep us afloat.
The key things to consider though, are where these savings are kept, what form those savings are in and what they were meant for.
If these savings are, for instance, in a Lifetime ISA, there is a penalty for removing them early. Likewise, if you’re under 55, withdrawing money from your pension means you’ll likely be subject to fees and a hefty tax bill.
Other types of savings may be much easier to access, for instance, savings in ISAs other than Lifetime ISAs and assets in standard savings vehicles or in brokerage accounts. But it’s still wise to carefully consider whether to withdraw these.
In the case of any funds you have invested in the share market, this could be a particularly damaging time to withdraw, as the market has seen such serious declines since the onset of the crisis. This is a time when buying may be a consideration (more on that in a moment), but selling could be particularly costly.
The ‘why’ of your savings is also worth considering. If these are retirement savings, spending a big chunk now could have serious implications for your financial picture at retirement. We obviously don’t know how long the current situation will persist, but it’s well worth trying to cut down unnecessary spending for a short period now, rather than dip into retirement money and impact how comfortably (or not) you’ll be able to retire.
It is worth noting that if the decision comes down to taking money out of non-emergency savings or taking out debt, using your non-emergency savings may be the right choice. Although interest rates are currently low, so are most savings rates. It’s very possible that you’re earning less in a savings account than you would end up paying in interest on a personal loan (and certainly on a credit card). In this type of scenario, taking money out of savings may be the right call.
4. Make a plan
You may not currently be facing particularly hard times. If so, that’s wonderful, and a fortunate position to be in. But it’s not a good reason to be unprepared. Since the outbreak began circumstances have changed quickly for millions of people around the world, so it pays to be ready for the unexpected.
No matter how strong your financial circumstances are right now, making a plan could well be in your best interest. Even as we begin to face the possibility of lockdown restrictions being lifted, creating a financial plan for your future could help make sure you take the best possible actions to put yourself on the best possible footing.
Creating a plan simply involves bringing together the work you’ve done to understand your income and expenses, and deciding on a flow for what actions you’ll take (if necessary) and when.
It’s difficult to give specific examples because everyone’s situation will be very different. However, in general, you’ll be working through your expenses and income (resources) and deciding the point at which you’ll take action on a given item.
Here are some examples to consider. At what point will you:
- Drastically reduce or eliminate your takeaway spending in favour of cooking your meals?
- Talk to your employer about furloughed status?
- Apply for Universal Credit?
- Talk to your mortgage lender about a mortgage payment holiday?
- Talk to your landlord if you’re concerned about rent payments?
- Begin using your emergency savings?
- Eliminate some unnecessary recurring expenses or downgrade subscription plans or contracts?
- Tap into options for borrowing (preferably 0% options, if available)?
- Use savings other than emergency savings?
You might consider a tiered approach for this plan. That would mean that certain actions come into play as and when specified changes occur in your financial situation.
Once again, examples could include when:
- You are assigned furloughed status
- You lose your job
- You apply for Universal Credit
- You exhaust your emergency savings
- You get a three-month mortgage payment holiday
- You are out of savings entirely
This isn’t an exhaustive list, but as you think through the situations that may befall you, you can consider which financial actions you’ll take at that point.
If, for instance, you lose your job (and your company has refused to give you furloughed status), your action may be to apply for UC. You may, as an additional action, apply for a mortgage payment holiday if you own your home. If you exhaust your emergency savings, or didn’t have emergency savings to begin with, that might trigger the action of reducing your spending in certain ways or considering your borrowing options.
Make no mistake, these aren’t fun things to think about. But it’s likely to be considerably easier to think through your options soberly, prior to any of these happening. Then you will be prepared to act if they do happen (and hopefully they don’t!).
Keep in mind though, that the same applies here as with any plan. This will be your intended course of action, and it may play out this way. But often life and plans don’t match up, so be prepared to be flexible as well. The ‘good’ news is that if you’ve done the work necessary to understand your financial picture, it will be easier to be flexible in a smart way.
5. Be cautious, but live life and be opportunistic where possible
Everything we’ve discussed here is focused on caution, as should be the case in a situation like this. What we’re facing with the pandemic is so out of the ordinary and changing so quickly that we really do need to be prepared for almost anything.
Find some balance
But it’s also important to take care of ourselves during these trying times. Mental health contributes to our physical wellbeing. The reverse is also true, and so if we only spend time fretting, then we could harm our physical wellbeing.
So do take the time to think through your financial position. And do consider what actions you need to take or will need to take in the case of adverse events. But also be sure to take the time to take care of yourself mentally. While we can’t be with family and friends, we can still call them, and, in many cases, see them via video calling methods. Make sure the food you’re eating is good, nourishing food. Watch something funny on TV. Exercise.
In other words, do what needs to be done, but try to balance the seriousness of the situation with some joy and levity. If you have trouble mustering that – and nobody could blame you if you do – try bringing some joy and levity to others. That’s often a surefire way to improve our own state of mind.
This comes at the end for good reason. Being financially opportunistic isn’t the focus right now for many people. For most, the focus is staying healthy, keeping family members healthy and simply staying afloat financially.
But for some people, there may be the possibility to do things today that may help improve their financial situation in the future – perhaps improve it considerably.
Be assured, this doesn’t have to mean that you’re a millionaire. Being opportunistic right now can mean using this crisis as motivation to make necessary changes. These changes could be motivated by having read everything above.
Here are a few ways you might be opportunistic right now:
Build that emergency fund
You may not need access to an emergency fund right now. But do you have one? If you are financially secure at the moment and don’t have an emergency fund, this is a great time to start one. Maybe you’ll make it through this crisis without needing it, but this is a great reminder of how life can catch us by surprise. That’s what makes an emergency fund so important.
Take advantage of ultra-low interest rates
Interest rates were already low, and are getting even lower. Many lenders may be a bit more cautious about lending right now, but there may also be good deals to be had. If you are in a good position to remortgage – which depends on a number of factors – you may be able to access an attractive mortgage rate. If you have credit card debt, you may be able to transfer that to a balance transfer card with a long 0% interest period. If you have other personal debt, you might be able to transfer that to a transfer credit card with a long 0% interest period.
Tighten up that budget
You’ve now had a chance to look through your spending to see where you might cut if you need to, due to pandemic-related pressures. But do you need to wait for a crisis to pressure you into reducing spending? Maybe some of that spending is unnecessary and could simply be cut. That could help you to build your emergency fund, or even to…
Times of crisis and upheaval have often been the best times to invest. In 2008 and 2009, during the global financial crisis, many shares were beaten down to a pulp, only to drastically recover in the years that followed. In the period 20 February to 23 March 2020, the FTSE 100 index – a general measure of UK share prices – declined by 33%. Savvy investors may be able to dig in to find individual shares that are ‘on sale’. But for those without the expertise to find individual shares, index funds can be a good option and allow investors to take advantage of chunks of the share market all at once. Investment returns could potentially be improved further by using a Stocks and Shares ISA and sheltering your share investments from the tax man.
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