The coronavirus pandemic has not only caused thousands of deaths, including more than 50,000 in the UK alone, but has also triggered a worldwide economic crisis, with rising unemployment, falling wages, and a slowdown of business.
On 11 August, the Office for National Statistics (ONS) announced company payrolls have plunged by 730,000 employees since March, with 81,000 fewer people employed since last month alone.
In May the ONS said the UK economy contracted at its fastest pace since the 2008 financial crisis during the first quarter of 2020.
It is already clear the nationwide lockdown has had a huge impact on the economy, with the closure of businesses, reduction in spending and employees forced to work remotely. Experts have said another recession would be hard to avoid.
Not to mention 7.5m UK workers has now been furloughed from their job and are relying on an 80 per cent wage from the government - which Chancellor Rishi Sunak confirmed on 12 May had already cost the government £10bn.
Therefore, it is now more important than ever to take stock of your own finances and make sure you’re in the best possible position to deal with the expected slump on the horizon.
Set and stick to a budget
Making and sticking to a budget is important no matter what your circumstances, but especially in an uncertain economic climate.
First, make a list of every outgoing cost you have. Start with regular payments such as your mortgage or rent, utility bills, grocery shopping, and subscriptions.
Then add in one-off costs and those paid annually such as your TV licence, car, home, and life insurance, regular gifts to family members, childcare, or leisure activities.
If you owe any money, such as credit cards, personal loans, or car finance contracts, include these too.
Once you have a total, you can compare this to the amount you earn each month. This will show you how much you have spare, how much you could potentially be putting aside for savings, or if you’re spending more than you earn and need to cut back to adjust this.
Cut back your spending wherever possible
There are lots of ways to cut back but one of the easiest is by switching your household bills.
Most companies rely on customers not switching when a contract finishes, and automatically rolling them onto a higher price. Now is the time to check when you last switched and to see if there is a cheaper deal available.
This applies to most bills including energy, TV, broadband, phone, and insurance. If you’re in the minimum contract term you may have to pay a fee to leave but this could still be less than the overall saving of switching to a cheaper deal.
Check a few comparison websites to see if you can find a better price. If you have not switched in a while, the savings could be significant. For example, you could save up to £280 just on your energy bills, according to comparison website MoneySuperMarket.
You can’t switch your water provider but it’s worth checking if a water meter could cut your bills – there’s a free calculator on The Consumer Council for Water website.
If you need extra cash, now is also the time to cut back on any unnecessary spending.
Takeaways, clothes, and subscriptions can all be axed until you get back on track. Cancelling Netflix and Amazon Prime, for example, could save you £170 while getting rid of one takeaway a month could see you around £240 better off over a year.
Build an emergency savings fund
An emergency savings pot is especially useful in uncertain times. Having between three and six months of your regular salary is ideal but anything you can put away will help.
For those with big debts, it may be better to have a small emergency fund and focus on putting more money towards paying off expensive debts.
This buffer means if your salary falls, or you have to pay for something unforeseen such as a broken boiler, you can use the money and won’t have to rely on debt.
However, the amount will completely depend on your circumstances. For those with big debts, it may be better to have a small emergency fund and focus on putting more money towards paying off expensive debts.
For those with money to put away, interest rates are low right now but any amount you can get will help. First Direct, HSBC, and M&S Bank, for example, pay 2.75 per cent on a regular savings account letting you put away up to £300 per month.
You can put more money into an easy access or fixed-rate savings account, but the best rates are around 1.2 per cent and 1.9 per cent respectively for these.
Target debt and make it more affordable
If you’re paying a high interest rate, look to see if you can transfer the debt onto a cheaper card. There are 0 per cent balance transfer cards available and if you are accepted for one you can pay the debt off at a faster rate.
Before you apply use a free eligibility tracker, such as the one from MoneySavingExpert, to see which cards you are likely to be accepted for.
Similarly, if you are just paying the minimum amount on a loan, it will take you a lot longer to clear it. Use a free tool to see how much quicker you could clear the debt – if you have the money available.
Use tech to help you stay on track
Keeping on top of your money has never been easier thanks to the numerous tools, apps, websites, and trackers available.
Most banks have their own versions of these. Starling Bank and Monzo, for example, both have apps which notify you when money goes out, analyse your spending, and let you set up short and long-term savings goals.
Make sure you’re claiming all the benefits available to you
There is a wealth of help available for those struggling and many new measures have been introduced which specifically help those affected by the pandemic.
From child benefit to pension credits, it’s important to make sure you’re getting all the help you’re eligible for.
Use a website like Turn2Us to see which benefits you could be getting and how to apply for them.
If you are struggling to get on top of your debt, you call the National Debt helpline on 0808 808 4000, Monday to Friday 9am – 8pm.