Whether you love it or hate it, staying at home is extremely important right now. Not only to reduce the spread of coronavirus but to protect the NHS from becoming overwhelmed.
We know that this is a difficult financial period for many people. If the impact of coronavirus and social distancing has negatively impacted your income, then here are a few ways you could look after your financial health in these uncertain times.
If you’ve been lucky enough to move into a work from home role, then you may notice that you’re spending less than normal. There’s plenty of regular expenses that have been eradicated by the ‘Stay at Home’ orders – for example, working from home means there’s no commute, and pubs and restaurants shutting means no snazzy meals out or drinks with friends (well, non-Zoom drinks anyway).
So, why not make the most of that extra money?
Buy yourself something nice
Hey, how often does this happen? If you’ve had your eye on something for a while but couldn’t justify it to yourself, then maybe now is the time to buy it. In times like these, little things can go a long way, so why not treat yourself? Obviously, it wouldn’t be a good idea to spend all your money like this, but if it’ll make you feel happier about being stuck at home, then you could argue that it pays for itself.
Re-think your cash savings
Another good use for your extra money could be to build up your emergency savings. In times like these, having some money that you can rely on in an emergency is a sensible idea. One way to figure out how much you can put aside is to look through your previous months’ bank balances and look for regular expenses. With banks, like Starling and Monzo, this is much easier, but it can be done with all banks.
Then you could see how much you normally spend on things you can’t do at the moment – like transport, entertainment, or eating out. But before you go and put that whole amount into your savings, check to see if any of your other costs have gone up. You may be spending more on your food shop, put a few cheeky orders in for ‘working from home’ attire, or signed up to Disney+. If you figure out the difference between these two numbers, you’ll have a better idea of what you can save.
Now could be a good time to invest
If you already have a sufficient emergency fund, then now could be a good time to invest. Since 20th February 2020, we’ve seen markets dropping drastically – falling more than 30% across the largest US[1] and UK stock markets[2]. Now, that might appear scary and it definitely wasn’t fun to watch, but it actually means that shares are cheaper right now.
Try to think of it like this. You bought a coat in February at full price, it was cold, and you wanted it, so you didn’t mind paying that price. But then in March things warmed up and that store put on a sale meaning that all their coats, including the one you bought, are now 20% cheaper. You’re a bit miffed, but what can you do? You probably browse the coats to see if there’s any you’d like for next winter. Then they have another sale where they take an additional 10% off – at this point the coat you bought in February is now 30% cheaper.
This is, in a very simplistic way, what’s happened with the stock market in 2020. It doesn’t make the shares you already had worthless, but it does make it cheaper to purchase new ones. There’s a popular strategy in investing of buying low and selling high, which means everything in the middle is potential profit. With the markets being the lowest they’ve been for a few years, this could be a good point to invest.
Get 25% more for your money
It sounds like a clickbait headline, but it’s not! If you invest in a personal pension, all your contributions up to £40,000 a year (or 100% of your earnings, whichever is lower) are given a 25% top-up. Consider it a Government reward for saving for your future.
This means that if you wanted to save £1,000 for your future, you’d only need to contribute £800 as the remaining £200 is provided in the form of tax relief. And while £200 is 20% of £1,000, it’s 25% of £800, which is the amount that you’d actually pay into your pension. Plus, if you’re a higher or additional rate taxpayer, you could be entitled to even more.
A pension works on a long timeframe, giving your money more of an opportunity to build up and ride out bumps in the market. So, if you don’t need the money right now and aren’t quite sure what to do with it, then taking a look at your pension could be a smart move.
Consider saving for your children
This is a hard time to be a parent, and we’re all appreciating teachers that little bit more at the moment. You probably don’t want your children to live with you forever, so why not help them on their way with a Junior ISA? Not only could you benefit from tax-free savings, but you could put your child on the road to financial stability when they turn 18. They could then use this money as a deposit on their first home, to buy a car, or travel the world (if we’re allowed by then).
Whatever you decide to do with your extra money, we hope that you stay safe, and stay motivated. In the infamous words of Edward FitzGerald, “This too shall pass.”
1. https://us.spindices.com/index-family/us-equity/dow-jones-averages
Your tax treatment will depend on your individual circumstances and it may be subject to change in the future.
Please remember that past performance is not a reliable indicator of your future results.
With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.
