To say the last 18 months have been both strange and difficult is something of an understatement! None of us have lived through anything like the Covid-19 pandemic before, and it has affected every area of our lives.
One of these is money.
Covid-19 has affected people financially in various different ways. These could be split broadly into two categories.
This term was coined by Theresa May’s government in 2016, to describe people in the “squeezed middle”. People who normally manage to get by financially, but don’t really have any disposable income. But during the pandemic, it seems even more relevant, in light of the large numbers of people who have just about managed to get through.
Many people have lost their jobs, around 10 million have been furloughed, and a significant proportion of self-employed people have either had to manage on fixed amount government grants or have missed out on help altogether.
The result of this is that during the pandemic:
According to The Office for National Statistics, by December 2020, almost 9 million people in the UK had to borrow more money than usual due to the pandemic.
But there is also another group of people – accidental savers – who have been able to save more money than usual during the pandemic. Particularly those who have been able to continue working, many from home, throughout the lockdowns. This group of people have had to spend less money on work-related costs, such as travel, food and drink. There has also been less opportunity to spend money on little luxuries such as holidays, live entertainment and eating out.
For this group of people, during the pandemic:
But what will happen to personal finances in the UK now that restrictions have been lifted?
It is widely hoped that post-lockdown there will be a strong economic recovery in the UK. The Bank of England is currently optimistic that GDP will regain its pre-pandemic level by the end of 2021. And unemployment figures are also looking promising. It had been feared that unemployment could rise to 7.75% during 2021, but is currently at 4.9% and is not predicted to rise much further.
So, the signs are positive. But the government is also encouraging consumer spending to help boost the economy. Earlier in the pandemic, Chancellor Rishi Sunak, encouraged accidental savers to spend heavily once they are able to do so, to help restore the economy.
But what do you think? Now that you can spend again, are you going to?
It’s not quite that straightforward. If you have saved money – particularly for the first time – you may want to hang onto at least some of it, for the proverbial rainy day. Perhaps the pandemic has made us all a little more cautious about having funds to fall back on in case of unexpected turns of events.
If you have struggled financially during the pandemic, it may take a while to get back on your feet again. And you may be shocked to remember how expensive it is to start getting out and about again.
So let’s take a quick look at three ways you can enjoy financial freedom post-lockdown, but still keep your finances in good shape. The 3Rs of managing your money.
Whether you are just about managing, or an accidental saver, there are three key areas to work on that will help you get and keep your finances in good shape. They are:
We’ve all heard the term ‘Spend, spend, spend!”. And, as we saw earlier, at one point this was being actively encouraged by the government to help rebuild the economy.
There is nothing wrong with spending money if you have it. Especially if there are things that you enjoy doing but have not been able to do for so long because of Covid. So don’t be afraid to get out there and treat yourself! Although you may find that there are some things that you want to do differently now. The pandemic has caused many of us to reassess what is important in our lives.
But do keep a watchful eye on what you are spending. Ration is a familiar term from the war years, to ensure fair distribution of food supplies. But the origin of the word also links to the Latin word ratio, meaning the relationship of one number to another. So in financial terms, think of rationing not only as setting limits on how much you spend, but also trying to keep your spending well-balanced between different priorities.
Many financial experts recommend the 50 / 30 / 20 rule for managing your finances. The idea behind this is that you aim to spend 50% of your income on your essential bills, such as mortgage/rent, household bills, food and transport; 30% on whatever you want, and 20% on savings. You may not be in a position to do that right now, particularly if you are just about managing. But it is something to consider once your financial situation improves.
We’ve just looked at the concept of saving 20% of your income. If you are not able to do this right now, then it is still worth putting away a small amount of money every month, and increasing that amount later.
Many of the accidental savers want to hang on to their pandemic savings. A Bank of England survey indicates that 70% of respondents plan to hold onto most if not all of their extra money. With the chaos caused by Covid-19, many want to ensure that they are in a stronger financial position in case of any future crisis.
We referred earlier to 9 million people having to borrow more money than usual during the pandemic. As things begin to return to some semblance of normality, it is important to repay that debt when you are able to do so.
Once you have a clearer idea of what income you will have over the next few months, try and budget your money so that you pay off more debt each month than you may previously have done. The sooner you pay it down, the better. This may mean that you need to be extra vigilant about spending during this time. It is also worth taking the time to contact creditors and service suppliers to see if you can get a better deal or spread payments differently.
If you feel overwhelmed, you could also consider contacting support organisations for free advice; for example Citizens Advice or Step Change.
We hope that this article has helped you to think about how to manage your money post-lockdown. For more lifestyle tips, money advice and 24 month loans, check in with us regularly here at Munzee Loans.
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