How to look after your personal finances during the coronavirus pandemic

As COVID-19, more commonly known as the coronavirus, continues to be a worldwide threat, people are finding themselves with a great deal of time at home which they’d not ordinarily have. The hope is to halt its spread, or at least flatten the curve, as the experts put it, so as to not overwhelm the NHS in the coming weeks. As a people-centred business, we are painfully aware of how this crisis is affecting our clients both mentally and financially.

Besides your health, the health of your loved ones, your job security, food supplies, your personal finances are one of the concerns that might be simmering away in the background and now is possibly the best time to calmly take a financial health check. Very few are financially equipped to miss a single month’s wage, let alone several months’ worth of income. As such, a lot of people are already in the process of learning some very hard financial lessons. Even if you’re in the fortunate position of being able to work from home, and thus retain your income as the country locks down, this crisis might serve as a lesson to always be financially prepared.

For our existing and future clients, we have put together some practical tips on how to look after your money during the coronavirus pandemic, so you can feel more in control at a time when we feel powerless as a nation.

1. Above all, have a plan – it’s the old adage: if you don’t know where you’re going, you’ll probably end up somewhere else. This is the most fundamental and first thing we advise all our new clients and indeed it’s that something that can reviewed annually. Even when circumstances and unexpected events such the Covid19 coronavirus occur, a solid plan will provide a point of reference and a landmark by which to navigate the uncharted waters. Don’t do it yourself unless you know what you’re doing. It is very difficult to be objective about your own circumstances, particularly when it comes to failures or shortcomings. You need an honest assessment of your financial situation, and the only way to get that is to have it done by an objective third party. A personal consultation with one of our independent financial advisers, via Skype or telephone, will illustrate the benefit of having professional, expert and dispassionate view of your financial circumstances, while also protecting you from the many scams now populating the financial marketplace. Employing the services of a chartered financial adviser also provides you the security of knowing that your wealth is in the safe hands of the country’s elite amongst financial advisers. If you find you’ve got extra time on your hands, now is a good time to dig out your pension paperwork and arrange a consultation with one of our financial advisers to discuss your pension and retirement plans.

2. Have emergency savings – Our big COVID-19 takeaway: If you’re going to save, start early. We’re often told to have money set aside in a savings account; specifically, enough to cover three to six months of living expenses. That’s not a random range, it’s designed to allow you to not only cover unplanned bills like home or vehicle repairs, but also to get you through a period of unemployment. The magic of compound interest means that the first contribution is the most valuable. If you start a savings plan at age 20 and stop contributing at age 35, you will have more money at 60 than someone who starts at age 35 and whose contributions double from 35 to 60. Equally, if you only start saving at 40, there are plenty of other achievable scenarios.

Of course, it’s difficult to build emergency savings while you’re already deep in the throes of a crisis, as we are now. If you’ve just been made redundant, you’re clearly not in a position to start building cash reserves (though what you should do is visit the gov.uk to explore the benefits available during the pandemic, getting temporary relief from paying your bills). On the other hand, if you’re still collecting your regular salary, take this time as an opportunity to build your savings in the coming weeks. If you’re self-employed and worried about how this might impact your incomings, the Government’s Self-Employed Income Support Scheme will offer a taxable grant of up to 80% of a self-employed person’s income based on their average monthly profits for the last three years, up to £2,500 per month and within a £50k cap.

We don’t know the precise financial implications that COVID-19 will have on markets, but it’s clear that its economic impact won’t be short-lived. And the best way to protect yourself from the many unknowns that lie ahead is to have a fully loaded emergency fund.

3. Take advantage of available tax reliefs – examples are ISAs which grow free of personal taxation, and pensions, which also grow free of personal tax, but also qualify for tax relief on the contributions.

4. Don’t fall back on your investments – Our second COVID-19 takeaway: Some people don’t store a lot of money in savings because they have stock investments and conclude that they can cash them out in a financial pinch. But the stock market has taken such a beating in the past few weeks that anyone who attempts to liquidate investments for cash right now risks faces massive losses. In short, an emotional response to a financial meltdown is the very worst course of action for any investor. The point? Investments can’t take the place of emergency savings. If you’re out of work right now and don’t have money in the bank to tide yourself over, you may simply have no choice but to cash out some stocks while they’re down. But that could be a harsh long-term blow to your finances. Once this crisis is over, keep one crucial rule in mind: Never lock away money in stocks that you may conceivably need to use within 5 years. Rather, build up your savings so you have the flexibility to leave your investments alone while they’re down and let them recover. Investing is a long-term game and as such the stocks will recover.

5. Clear off expensive debt before saving – you will certainly not get as much interest after tax from a bank account as you will be paying on your debt. There is a possibility you might get a better return on a different sort of investment but you would have to take more risk and there would be no guarantee; and all the while you’ll be sure to be paying the interest on the debt.

6. Protect your loved ones – there is no point in putting in place great plans for the future if you’re not going to get there. Life insurance is generally inexpensive and gives you and your family peace of mind that liabilities are going to be met. Put it in trust: If you do take out life insurance cover, consider putting it in trust. Failure to do this could mean a long delay before the money is paid out, disputes about who gets the money, and an Inheritance Tax liability – all at a time when money is needed quickly and with the minimum of additional aggravation.

7. Household Budgeting. Review your expected incomings and outgoings Now is not the time to be too scared to check your bank balance. It’s essential to know the reality of your financial situation. Check exactly what you’re expecting to come in over the next few months and make a list of all your outgoings, including food, housing costs, and any essential bills. Create a budget If you’ve never had a strict budget before, now’s a great time to sort one out. If you’re on top of your spreadsheets, it’s worth giving your budget a refresh to take into account these new circumstances and how they will affect your income and what you spend. Be realistic and look at the last week as an example of what you’re spending – it’s easy to think the lockdown means you’ll be spending no money at all and can thus save up loads of cash, but this is rarely the case as people panic buy and invest in new entertainment for time spent at home. Equally, it’s important to treat your budget as a living document – a budget only works if it feels realistic to your circumstances, which can change, particularly in the current climate we find ourselves in. Don’t be too hard on yourself, if you need to amend it, you can, just do what feels right. This is one of the most fundamental and satisfying parts of the services we provide at Fiducia; financial planning creates a culture of financial freedom and peace of mind.

8. Don’t forget critical illness cover – Statistically, you’re much more likely to be diagnosed with a critical illness than die during your working life. According to Royal London, a non-smoking man aged 40 is 4.1 times more likely to be diagnosed with a critical illness than die before retiring at 65 years old. Critical illness cover pays out money on diagnosis of one of a list of serious illness, money that can be used to repay a mortgage, fund needed private medical treatment, or just tide you over during recuperation.

9. Make a will. Only around 35% of people in the UK make a will. Even in the simplest of circumstances, having a will reduces the time and the cost needed to deal with an estate. In more complex cases, it is likely that a will, with the help of a specialist financial planner and solicitor, will reduce Inheritance Tax liabilities and make sure more of your assets pass to your loved ones.

10. Review your planning. You would think of driving 100 miles without checking if you were on course, so why would you treat your financial planning like this? Regular checks against your original plan, updated to take account of changing circumstances, will give you the confidence that you are on track to achieve all that is important to you.

These are desperately difficult times for us all and the forced time spent at home can make the problems and worries seem bigger than they are. However, in many ways it is a great democratiser, as it impacts all demographics. Regardless of how much money you have, there is a huge economic impact on everyone. We know this is true due to the unprecedented levels of state aid being introduced.

We continue to support and guide our clients who are concerned about their finances and investments and assure you that we are monitoring the developments closely as we adjust our portfolios and plans in response to our investment committee’s insights. We also look forward to helping more of you manage your finances and establish financial wellbeing.

We don’t know how long the UK’s lockdown will last but we do know that there are many ways in which you can improve your financial health in the meantime.

Please contact us to arrange your free, no obligation meeting with one of our advisers, either on the phone or via Skype and allow us to help you improve your financial wellbeing.