Making the most of your money

Young Couple Looking At Laptop With Coffee (1)

The coronavirus pandemic has impacted people’s finances in many different ways. A lot has changed this year, including what we spend our money on.

For some, the pandemic has created new financial challenges. Illness or a change in circumstances could have had a significant impact on your financial situation. If you’ve been affected by the pandemic then our webpage on Recovering after the lockdown has lots of useful guides and tools to help you.

But for others, lockdown may have provided an opportunity to cut back on spending and make some savings. The current situation has meant we’re no longer able to spend as we normally would on things like eating out, holidays and our daily commute. You might have even made a saving by cutting back on buying a coffee in your break or buying lunch out every day. This ‘new’ normal has changed the way people think about their finances and it’s a good time to improve your money habits and if you can, put a bit more aside for a rainy day.

For some, lockdown offered a chance to consider their finances and focus on paying off some of their debts. From April to June household debt fell by £18.5 billion according to ONS (Office for National Statistics). The Bank of England reported that people in the UK had paid off £15.9 billion from their debts in March, April and May during the first lockdown, £9.2 billion of which was credit card debt and £6.7bn was from loans.

On top of that, some people are saving more. According to the ONS on average we saved almost £3 in every £10 of our disposable income – that’s the money left after paying your bills – between April and June this year, the highest amount since records began in 1987. The ONS also found that household spending fell by a massive £80.5 billion in April to June, a drop of almost a quarter (24.2%) compared to the previous three months at the start of 2020. Most of that came from reduced spending on hotels, restaurants, entertainment, travel and car sales.

We created our MoneySure campaign to help you take more control of your finances, whatever your current situation. If you’ve already cut your spending, or perhaps want to manage your money better, here are our top five tips for making the most of your money:

  1. Brush up on your budgeting: This is a great place to start, whatever your current financial circumstances. Budgeting will help identify where you can cut back on your spending. By creating a budget plan you can calculate your outgoings compared to your income. Why not dig out some of your bank statements from before lockdown to see how your spending has changed? Creating a budget can help you build some positive money habits when things start to return to normal by setting yourself a maximum monthly budget for certain activities. We’ve included lots of budgeting tools and guides on our MoneySure page to help you get started.

  2. Pay off some of your debts: If you do find yourself with some extra spending money, you could think about putting that towards paying down some of your outstanding debts if you have any. Before you make a payment, check with your lender first to see if you can make overpayments and if there are any fees associated with early repayment. If there is an additional charge, you’ll need to consider what is best for you and your financial situation. You can find more information here.

  3. Build a rainy-day fund: A rainy-day fund could provide a bit of breathing space to get your finances in shape if you ever need to. The rule of thumb, according to the government’s Money Advice Service, is to save the equivalent of three months’ salary, so if you do have a change in circumstances you should have enough saved up to pay your normal bills for three months. You could build a buffer by saving a lump sum or start saving more on a regular basis to build up your rainy-day fund. Savings accounts’ access and rates can vary so make sure you check the terms of the account you use. If you can, saving big or small is always a good habit to get in to. For more savings top tips read our guide on sticking to a budget when trying to save money.

  4. Put money in your pension: If you’ve paid off whatever debts you can and have built up a rainy-day fund, but you’re still lucky enough to have some money left over, putting it into your pension could be a great option. You should check with your pension provider to understand what the rules are about additional contributions to your pension, and if you have an auto enrolment or workplace pension from your employer, you will probably need to speak to them first.

  5. Spend responsibly: Being able to save during lockdown might have enabled you to bring forward some of your plans. For example, you may want to create more space to work from home or purchase a car to avoid regularly using public transport. If you are considering making a large purchase, it’s important to plan and consider your budget and situation. If you’re planning some much-needed home improvements, we’ve put together five top tips to help you get started along with our guide to the lower cost home improvements that can still add value to your property. If you’re considering buying a used car, then our tips of the trade can help with your search.

Whether you want to save a bit more as your circumstances have changed or you want to make the most of the money you’re no longer spending, we’ve put together some useful guides and resources to help you manage your money on our MoneySure page.