Top tips for managing your family’s finances through the coronavirus pandemic by John Ellmore, Director, KnowYourMoney.co.uk
The impact of the coronavirus pandemic is vast – there is virtually no part of our day-to-day lives that has not been affected.
People’s physical and mental health is, naturally, of paramount concern during this testing period. But so too are the finances of individuals and families, with mass furloughing and redundancies potentially placing households under significant strain.
Two labour market experts – David Blanchflower and David Bell – have stated in a study published by the National Institute of Economic and Social Research that unemployment in the UK could rise by as many as 5 million people by the end of May.
Managing your family’s finances through the coronavirus pandemic
Clearly, now is the time to take stock and assess how families can best prepare for – or adapt to – the financial fallout from COVID-19.
How will spending habits change?
Before delving into some advice that may help families manage their finances, it is important that we understand how spending habits will change.
After all, while people’s earnings are at risk, the way we are saving and spending money has also changed drastically. Eating in restaurants, 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.
To put this into context, it is worthwhile analysing the Office for National Statistics’ recently-released annual ‘Family Spending in the UK’ report. The findings from this study cover the 12 months to April 2019. As such, it provides a useful benchmark of what “normal” expenditure looks like for households across the UK, from which we can then assess how things will chance.
For example, average weekly household spending in the UK during the 2018-19 financial year was £585.60. However, transport costs combined with cultural and recreational spending accounted for £157.10 a week – this is a major proportion of families’ usual expenditure that will, in most cases, drop to a fraction of its usual amount.
The reduction in what are very common forms of expenditure should offer families a little more financial breathing room than under normal circumstances. And there are other things that households can do to ensure they are suitably prepared for what looks likely to be a lengthy period of economic turbulence – so, here are three pieces of advice.
Perform a financial audit
Firstly, I would urge families to take the time to perform an in-depth review of their finances. Finding time to do this might be difficult; many parents are working full-time while also having to entertain their children who are now home from school or nursery. But setting aside time in the evenings is certainly worthwhile.
Although it may sound simple, families must assess exactly how much money they have coming in and 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 not just based on the current situation but also a worst-case-scenario.
As part of this process – specifically when looking at their spending patterns – families ought to 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.
Included within this there is the option of a mortgage holiday. It is wise to take such action as early as possible once concerns surface – it is better to protect savings rather than trying to continue as normal by running up debt or burning through cash reserves.
Having complete transparency of the families’ finances is essential to creating a suitable plan. It can also ease anxiety, ensuring families do not bury their heads in the sand but instead confront any potential financial issues head on.
Ok, with the audit complete, now it is time to consider a wider savings strategy.
Most notably, it is important to consider switching suppliers. The aforementioned ONS report found that UK households spend an average of £34.40 a week – or £1,788.80 a year – on gas, electricity, water and other fuels.
This figure could be far lower. In fact, according to Ofgem, the average household can save £300 per year by switching gas and electricity supplier.
Furthermore, it is prudent to take a look at other major outgoings such as home, building and contents insurance. Again, there are often significant savings to be made when a policy is up for renewal, so families should do their research and shop around for the best possible deal.
Again, finding time to weigh up the available options can be difficult for families during the lockdown. But it is time that could be very well spent, and with comparison platforms readily available the process could be simpler than people think.
Stay calm, shop smart, be prudent
Underpinning all of the above, I would encourage families to remain calm and level-headed in the weeks ahead. Consider your options, do research, and speak to experts where necessary.
All major purchases, particularly those for non-essentials, should be questioned – it can be tempting during the lockdown, when we are all in need of the odd pick-me-up, to find excuses for treat purchases such as a new TV, kitchen gadget or piece of furniture. It is a temptation that must be fought, or at very least scrutinised.
This extends to food shopping; do families need all the items on their list, or are there meals that could be made using store cupboard ingredients? After all, in late March 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 is important families use up these items where possible.
And finally, families should also remember that they can give themselves a financial boost by making very small changes. For example, the Energy Saving Trust (EST) recently released research that showed if UK households did little things, 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.
Weathering the storm when managing your family’s finances through the coronavirus
Ultimately, making sensible and considered decisions over the coming weeks could have a notable impact on the financial health of families 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, remember that there are support services available, such as the Money Advice Service, National Debtline and StepChange Debt Charity.
John Ellmore, the author of managing your family’s finances through the coronavirus pandemic 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.
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