There’s no one-size-fits-all approach to managing money. LoyalRate is here to cut through the noise, make money simple and help you improve your financial situation. At LoyalRate we’re driven by our mission to help employees live financially happier and healthier lives. We recognise that many people will be worried about their money, potentially now more than ever. This may mean people are struggling with financial stress and the impacts on their mental health. When thinking about your money, we have summarised four steps to take to achieve better financial wellbeing.
1. MANAGE DEBT
Step one is to clear any expensive debt you have. Dealing with this makes everything else possible both financially and mentally. If you have expensive debt, consolidating it at a lower rate could put more money back in your pocket and help you to get out of debt quicker. At this time, this could really make a difference to how much money you have at your disposal as well as saving you money in the long-term.
2. THE ABILITY TO DEAL WITH A CRISIS
While we may be currently learning how to deal with coronavirus, this step is about creating resilience. Building the right financial habits can help to protect you from unexpected expenses and changes in circumstances. Can you cut some costs to help build up an emergency fund to give you financial peace of mind?
3. GET ORGANISED
Building an understanding of what you have and where your money is going creates security in the present and provides a foundation to start thinking about the future. We can utilise some of our time social distancing to do the things that we often neglect.
4. SET A GOAL
Once the present is secure, we can help people think further ahead to a long-term financial goal such as preparing for retirement. While many of these life goals may be on hold, they won’t be forever. So having a goal in mind could help you to take action on steps one, two and three. This guide has been structured to reflect these four steps, with a section on each, to help you navigate the information available and work out where to start. While these are unusual and worrying times, when we get through this (and we will!), by implementing some of the hints and tips in this guide, you may be able to reduce your money worries and come out of lock-down with some new – possibly even better – financial habits.
DO YOU HAVE EXPENSIVE EXISTING DEBT?
According to The Money Charity, the average Brit has £4,264 of unsecured debt. If you are one of those people, your debt may be costing you more than you realise. Take a look at your credit card and loan interest rates as well as how much you owe. If you know how much debt you have, and what that debt is costing you, you can prioritise what to pay off – to get out of debt the absolute fastest, you’re going to want to pay off the debt with the highest interest rate first. If you have expensive credit card debt, could you benefit from transferring it to a 0% balance transfer card? Compare the different options here. Don’t forget, if you have a credit card and only pay off the minimum amount each month, it can take a really long time to get out of debt. In the UK the average credit card debt is £2,595 – paying off just the minimum each month would mean it takes 26 years and 8 months to repay it, and it would cost you a lot of money in interest.
CONCERNED YOU MAY NOT BE ABLE TO AFFORD REPAYMENTS?
If you think you’re at risk of missing a payment, defaulting on a bill, falling into arrears or even struggling with paying your rent, it’s important to be proactive – speak to your lender, your landlord, HMRC – whoever it is! – before you get into trouble with your payments. While it’s a daunting task, if this is something that’s causing you stress, it needs to be addressed head-on. To start, visit your lenders’ websites and see if they have released any information on their response to Covid-19. If they haven’t and you know you’re going to struggle to pay a bill, it’s best to get ahead of the game and let them know. If you speak to your lender, they will be able to explain the options available to you personally and you can make an informed decision.
REVIEW YOUR BUDGET
If your household’s income is about to change because of coronavirus, it’s time to review your spending. Here’s a useful budget planner from the Money Advice Service which could help. The aim is to come up with a budget that only takes into account your absolutely necessary and critical expenses so you can clearly see how much you need to cover. By doing this, you’ll be able to figure out if your reduced income still allows you to cover all of your basic needs, or if you need to consider other options to bring in additional money.
CUT COSTS WHERE YOU CAN
Part of reviewing your budget is working out what unnecessary costs you could reduce or get rid of entirely – many of us have some sort of subscription we don’t use or need. Read the next section for more tips on how to cut costs.
WHAT TO DO IF YOU HAVE A DROP IN INCOME
Most of us will be impacted financially in one way or another – be it ourselves or our loved ones. For millions of households across the UK, the impact of coronavirus could mean a reduction in work hours, getting paid only 80% while being on temporary leave (“furlough”), risk of redundancy and potential job loss. If your household has experienced a drop in income already, or you want to prepare in case it is still to come, here are five steps you can take:
• You may be eligible for Universal Credit, Child Tax Credit or Local Housing Allowance. Check what you’re entitled to by using a benefits calculator like www.turn2us.org.uk.
• If you’re a parent, while schools are closed due to coronavirus, you could also get access to a weekly £15 shopping voucher if your child usually gets free school meals.
LOOK AT OTHER WAYS TO BRING IN INCOME
As most of us are staying home, it might seem difficult at first to think about ways to bring in extra income right now. However, it could be that there are things about you that you wouldn’t even have considered but could help to generate additional income. Is your first language one that is taught in schools? If so, could you look at tutoring online? Translation, proofreading or transcribing are all things that can be done from home. If you or a loved one have a skill you think you could sell to make up a loss in income, you could look at signing up with Fiverr as a freelancer. When thinking about other ways to bring in income it’s also important to think longer-term. Could you use this time to upskill or get any other qualifications that could increase your future earning potential?
DON’T BE SO HARD ON YOURSELF
The Covid-19 situation is a lot to take in for all of us. It’s ok if you feel like you’re going backwards financially right now. We’re going through this emergency situation, so while it may mean you need to take advantage of the government help available, tap into your savings, or add to your debt to get through if you don’t have any other options, this won’t last forever. The important thing is to be prepared and carefully consider and review all options available to you before jumping into anything that could have a long-term impact. If you’re making decisions about your finances, think about how you can get back on track when things go back to normal and carefully consider any choices that may make it difficult for you in the long-term.
CUTTING COSTS – HOW TO MAKE YOUR MONEY GO FURTHER DURING CORONA
When managing a crisis (be it present or future) making every penny count is something that could help us all. At this time there are some general money saving tips and tricks that could help you to save money right now.
• You can also sell old unused tech like mobile phones, tablets and laptops on Mazuma or Laptopsdirect. Even if you’re not sure anyone will want your old Lego collection, it’s worth putting it up for sale anyway – one person’s trash is another’s treasure!
• Many high street shops, like H&M and John Lewis, will offer you money, a gift voucher or a discount if you bring in the stuff you no longer wear. As stores are closed at the moment, you won’t be able to take these in right now, but you can start the decluttering process and reap the rewards when lockdown is over.
UNDERSTAND YOUR SPENDING TRIGGERS
• What makes you spend money? Is it a shopping app on your phone you gravitate to when you’re bored and scrolling late at night? Is it that your card details are saved to your browser or that you shop when you’re feeling down? If you’re someone who shops when sad or stressed, try to avoid temptation or make it more difficult for you to shop quickly.
• Maybe you can delete an app or two or remove your card information so that you physically have to move to get your card before you can complete a purchase. By making it harder to impulse shop online, you may find you’re able to save a surprising amount. If you still find you have the urge to splurge, make an agreement with yourself to put it on your wishlist or leave it in the checkout for a day – if you still find yourself thinking about it, maybe it’s worth it. If you forget about it after 24 hours, you probably didn’t need it in the first place. For a detailed view of all costs you could cut, the Money Saving Expert has a wealth of information (pun intended).
What can you start doing differently to set you up for success? Then, when life goes back to normal, you may find you’re in a better position financially and mentally to make your long-term goals a reality. When thinking about setting financial goals, many of them relate to big life events – buying a home, having a family, building a pension fund or that trip of a lifetime. Unfortunately, many of those things feel out of reach or are on hold right now, but that won’t always be the case. So right now, maybe you can set a goal that is more actionable and instant.
In the current situation, implementing some of the tips from this guide and looking at addressing the first three steps could set you up to really work out what step four means to you. So, what steps can you take right now?