A year ago the world changed in ways that most of us could have never imagined. We watched as life as we knew it shifted dramatically. We went through not one but three lockdowns. But we adapted. Vaccinations are now proceeding apace and there seems to be some light ahead. One year on, we analyse the impact of the pandemic on our finances and look at how we can continue to weather the unknown storms ahead. If you have been severely affected or would like to discuss your financial situation, our independent financial advisers are here to help. Please get in touch with us on www.plutuswealth.com to set up a time to talk.
The early days
Even now, things change on an almost daily basis. What we do today could be different to what we thought we would be doing only yesterday. And while we can plan for tomorrow, we know that those plans may have to change. But even in the short space of the past 12 months, we have adapted and are much better prepared for such last-minute changes.
Initially, the markets reacted as they usually do when there is an unexpected, unknown situation. They went into freefall. Lockdowns and restrictions resulted in business closures, layoffs, and that new job status we have all come to know – furloughs. But they recovered, and while they have fluctuated at times, they have continued on a positive trajectory.
The positive impact on our finances
The impact on finances was felt immediately. For some, it meant a lower income or no income at all. For many others it meant a complete change in how they work. But even within that uncertainty and sudden need for adjustment there have been positive effects.
The pandemic has made us take a long, hard look at our finances and how we manage them. And it has turned many of us into much better savers. For those able to work from home, money that would normally go into commuting has been put into savings. For all of us, money that we would normally spend on holidays, socialising or eating out has been put aside instead. A Bank of England study found that even where income did not fall, there was a significant reduction in spending.
A Financial Times report highlighted how cutting back on spending has enabled us to reduce our credit card debt. Collectively, credit card debt has been reduced by nearly £10 billion in a 12-month period. When it comes to our finances, the fear of the unknown means that we will try to save as much as we can.
Where we did not typically have emergency savings before, now we do. Things eased up a little over the summer, but quickly went back into new lockdowns and restrictions in the autumn and winter. Furlough schemes have been extended yet many are still managing to save.
The negative impact on our finances
Few escaped unscathed, though. For those who lost their job or business, there was little respite. Unemployment could still increase once the furlough scheme comes to an end and those savings (where available) could soon disappear again.
Those who are nearing retirement age may have to change their plans if their finances have been impacted significantly. However, it is worth bearing in mind that markets have recovered, and for the most part recovered well. There may still be some volatility from time to time, but don’t forget that the way things are portrayed in the media may not always be the whole story.
Can finances be weatherproofed?
If there is one thing that is more certain it is that there will continue to be uncertainty. However, that need not be a bad thing. Our collective drive to reduce debt and increase savings will stand us in good stead, so long as we continue those good habits. Lower debt means greater savings in the long term. An emergency fund could tide us over should things temporarily take a turn for the worse.
Mortgage lenders and banks have been offering better rates on mortgages and savings recently. Switching mortgage lenders, if you can, may be an option to consider to reduce outgoings. If you took a payment holiday on your mortgage, it will not count against you on your credit score.
Shopping around for better savings rates could also pay off. Returns may not be stellar, but they are better than they were 12 months ago. And as we found out in the past year, every penny counts.
Markets will always fluctuate, and it is our job to help you navigate those waters. Your attitude to risk may have changed since the pandemic hit. That is something that we can discuss with you, as it could have implications on how to manage your investments.
If you have been following our blog, you may have set up a budget (if not, see our New Year’s financial resolutions article for help on how to do this). It is never too late to make changes, so don’t let the new year part hold you back.
We are always here to help