Suzanne McGowan is experienced when it comes to looking after finances during a crisis. In this blog, she lists her top tips for how best to manage your finances during this uncertain time...
When a crisis happens it’s natural for you to worry about the impact on your financial situation. Your instincts to protect your loved ones and prepare for every eventuality kick in. To help you understand and focus on the areas you need to consider we have put together some practical financial advice to assist you.
Coping with an interruption or reduction in income
Who had ever heard of furlough leave and furlough pay before March 2020?
A furlough is a temporary leave of employees due to the special needs of a company or employer, which may be due to economic conditions at a specific employer or in the economy. These involuntary furloughs may be short or long-term, and some of those affected may seek other temporary employment during that time.
Most of us rely on a regular income payment; either from employment or from a pension to meet our daily costs of living. Where this has been reduced due to furlough or because a pension value has sharply declined an interruption or reduction income can cause stress and hardship.
To reduce the difficulties and anxieties it’s important to take control as early as possible. The first principle of good financial planning is budgeting. Understand what the new income level will be and implement strategies that will reduce outgoings. The following strategies could help.
1) Consider whether you are eligible for a mortgage holiday.
- Payment holidays might be an option for both residential and buy to let clients. In the past these have been seen as a negative by lenders and it can affect a client’s credit score but in light of the current crisis this should not be the case, but clients are advised to check this with their lenders.
- The key thing to remember is this is a holiday and not free money. For most lenders, if a three month holiday is taken, the lender will add three months onto the end of the term (if it’s a repayment mortgage). Alternatively, they will add three months interest to the total debt (if it's an interest-only mortgage) so the client is no better off, they are just giving themselves more available cash day today.
- It is important to check that taking a payment holiday does not mean that you cannot pick a new deal with the same lender when the current product ends as this is a hot topic in the mortgage industry now.
2) Reduce unnecessary spending as you will not be spending on restaurant meals or entertainment outside the home. Also consider premium TV packages, household purchases and expensive clothes (no one is going to see them for a while).
3) Look for ways to reduce costs: almost any item on your budget could have savings potential, renegotiate phone plans, utility bills, and insurance.
4) Avoid going into credit card debt – it is always better to cut your expenses than go into credit card debt with expensive interest rates. If you must use credit cards, never exceed your credit limit, make monthly payments on time to avoid fees and have a plan for paying off the credit as quickly as possible.
5) Find ways to earn an additional income because it's not easy at this time. If you have no employment, the supermarkets need staff and delivery drivers desperately. If you are fit and well this could be an option.
Remember the basic principles of financial planning
You may need to call upon your emergency funds (cash savings) to get through the short-term. In the longer term, you should have a plan to replenish these. Protection policies will also remain important.
Long-term savings and Investments
As a crisis can have a significant downward impact on markets you may find that the values of your personal investments, including your pension, has dropped significantly. Depending upon when you planned to access these funds it can be scary. Studies of behavioural finance show that investors make emotional decisions with respect to their finances and that ‘fear of loss’ in falling markets carries twice as much weight for decisions as the hope of gain. Good financial advice is key in deciding whether to hold investments. Don’t make any panicked decisions!
If you are struggling with debt repayments speak to your lenders about options, we are not specialists in debt consolidation and would recommend that you try Citizens Advice. You can contact an adviser through their national phone service on Adviceline: 03444 111 444. Adviceline’s available 9 am to 5 pm, Monday to Friday. It’s usually busiest at the beginning and end of the day. It's not available on public holidays.
If you have investments and are considering your options or restructure, you can contact us via the contact form.