Few of us have escaped a financial hit from the outbreak of Covid-19. You may face an income reduction, a slump in your investments, or concerns about whether your business will survive.
Yet whatever your financial woes, there are simple ways to reshape your financial future and manage your money amid uncertain times. Our guest blogger and personal finance expert, Harriet Meyer explains how.
Now is the ideal time to reconsider your long-term goals, and what you’re trying to achieve with your finances.
You may care less about that promotion, starting a business, or travelling the world, for example – and more about making your home life as comfortable as possible. Or perhaps you simply have more time to check whether your finances are likely to support your goals, if these haven’t changed.
If you can envisage what you want to achieve in the years ahead, you can do the financial groundwork to make things happen.
Track your spending
You may have dipped into savings to make ends meet during the pandemic. So it could be that you need to rebuild your cash buffer, as a priority.
Drawing up a budget is a good start, and the best way to track your spending. Even if you think you have no money to spare, you may find you can free up cash that could be put to better use for your future.
Make a list of all income and outgoings. Then, go through your spending to see where this may be cut to boost your savings potential.Ideally, you want to slot away enough to cover around three months’ worth of living expenses.
Protecting yourself from financial difficulties by investing in insurance can be a future lifeline.
For example, income protection insurance will provide you with a tax-free income if you’re unable to work because of an accident or illness. You choose when cover kicks in – after, say, three or six months. This will depend on any savings and cover from your employer. This can be particularly valuable insurance for the self-employed who do not have any sick pay or insurance through work.
Alternatively, critical illness insurance will pay a lump sum if you are diagnosed with one of the illnesses covered by the policy,but these policies are typically more expensive. A broker or financial planner can help you work out the right cover for your particular situation.
Keep calm and carry on
If you have money in the stock market, the value of your investments may have plummeted during the market slump. But history shows that, given enough time, markets typically recover. So hold your nerve and,ideally, avoid selling out of the market during dips, as this will only turn paper losses into real losses.
Of course, you can’t be certain there won’t be further falls, but if you have a long-term time frame of at least five years and,ideally, longer, this should give your investments a chance to recover.
Start an investment habit
You should only invest if you can afford it, and have many years until you’re likely to need the money – for retirement, for example. Investing may not be for you if you have expensive debts to service.
If you're thinking of investing, you could take OpenMoney’s financial health check, which considers your circumstances and whether or not investing is right for you, or if there are other steps you should take first.
While markets have been volatile, this could be an opportunity for those who haven’t yet invested to start doing so. That’s because you benefit from so-called pound cost averaging. This means you buy more shares when their price is lower and fewer when their price is higher.Over time, this helps to potentially smooth returns.
Get a financial boost from the taxman
Tax-efficiency is key to long-term financial returns,and both pensions and ISAs offer generous tax breaks. You can slot up to£20,000 into an ISA in the 2020/21 tax year, with all investment growth and interest free from tax. Even if you cannot afford to save into an ISA this tax year, it’s one to bear in mind for future savings.
You get tax relief at your personal rate when you save into a pension. So if you’re a basic-rate taxpayer, £80 will amount to a £100 contribution, with 20% tax relief added. A higher-rate taxpayer only needs to save £60 to make a £100 contribution. Over time, this can add up to a substantial boost for your retirement pot.
Talk about financial concerns
Money can be a taboo subject among friends and family.Yet by openly discussing any concerns or needs that may have arisen during the pandemic, you may gain a fresh perspective and support for the future.
Find someone you trust to talk to about any stresses you may have. A unified effort to boost your finances is often the best way forward. If and when the time comes, you may want to seek professional advice to help achieve your financial goals.
Harriet has specialised in personal finance journalism for over 15 years. She writes for a wide range of newspapers,magazines and websites as a freelance journalist. These include Moneywise,Investors Chronicle, Saga, The Sunday Times, The Observer, MoneySavingExpert, Zoopla, House Beautiful, and many others.