2020 has taught us many things, most importantly, the importance of saving. Whether it’s enough to pay for emergency repairs on the boiler, or cover the mortgage and your living expenses for a couple of months due to unexpected unemployment, having savings set aside will ease some of the pressure should an unforeseen circumstance arise.
What do the nation’s savings look like?
While many support measures were put in place to protect jobs and help the nation to cover their main expenses by introducing payment holidays on mortgages and credit card payments, the question is without these in place, how would the nation have fared?
For many, having this buffer provided by the government was a welcome reprieve from uncertainty, but it also provided a safety net that won’t be there into the long term.
According to the Office of National Statistics, 40% of those aged 22 to 29 years of age have no savings at all, while around 10% of those have savings between £2000 to £3000, whereas around 25% have saved more than £6000.
At the opposite end of the spectrum, of those aged 55 and over, only 2.23% have no savings at all, with the highest average for those in this age group standing at £20,028.
|18 – 24||£2,481|
|25 – 34||£3,544|
|35 – 44||£5,995|
|45 – 54||£11,013|
|55 and over||£20,028|
Money and mental health
One of the biggest contributors to poor mental health is poor personal finances. According to The Money Advice Service, one in five (21%) of UK adults say that their mental health has deteriorated as a result of money worries, costing an average of 46 minutes of lost sleep a night. There is a strong relationship between debt and mental health, with money problems being both a cause and a result of poor mental health. People experiencing financial difficulties are more likely to feel anxious, depressed and stressed, while those with an existing mental health problem find themselves more likely to get into debt. The figures show that of those who are currently in some form of debt, two fifths (38%) have felt anxious and a third (34%) have suffered from stress, depression (29%) or mood swings (21%).
Attitudes to saving
To understand how the pandemic had an impact on attitudes to saving, we recently polled our followers on social media. As a result of the pandemic, 53% indicated that they had begun to save or save more, 16% still needed to start saving, 11% said there was no point due to poor interest rates, and surprisingly (or maybe not) 21% were continuing to go about their spending as usual.
While savings rates might not be attractive at present, COVID19 has been the wake-up call that many have needed to reinforce that having a pot of savings to revert to in case of emergencies is a must-have.
Reassessing your financial future
Being realistic about your incomings and outgoings is one way to get you on track with your financial situation and get you on the right track. It’s likely that you are spending much more than you believe you are, but setting up a spreadsheet which details the amount you have coming in and committed expenditure out such as mortgage payments, utility bills and membership fees will provide you with a clear understanding of what money you have left at the end of the month.
Review existing credit agreements to identify if you can get better deals, from broadband to your mortgage, and consider whether you need to be financing items such as cars, expensive holidays and large houses?
Loans, credit cards and overdrafts
Loans, credit cards or overdrafts often have high-interest rates which can make them difficult to clear. However, if your outgoings are down as a result of working from home or spending less going out, then now is the time to use that extra expenditure to get these paid off.
If it’s not practical to pay off in a lump sum and you have a loan or credit card then look into transferring to a 0% or lower rate of interest balance transfer. It is always worth calculating how much you would need to pay a month to pay it off in full during the offer period. If you can realistically pay that amount a month, then it is certainly worth doing so with the aim of having this debt cleared for good.
The added benefit of doing this is that should you need to raise some extra cash at any point during that offer period, you can reduce down to the minimum monthly payment, but you will have already got a head start on clearing this debt. Lenders will also look at you more favourably if you do need additional assistance.
Setting up savings
Where possible it is ideal to have anything between six to nine months worth of expenses in an easy access account as a buffer against illness, redundancy, acts of god and even pandemics! The nature of life is that bad and unforeseen events happen all of the time and as we have seen recently, quite indiscriminately.
If you already have personal savings whether it be a regular saver, easy access or ISA, as part of your financial planning process and ongoing management, understand what interest rates you are currently earning and research the market for better rates and make the switch and make sure to make a record of when to revisit it when they rate comes to an end. Too often, people stay with the same accounts unnecessarily due to what they perceive to be a cumbersome process.
If you already have easy access savings or you are confident income from other sources, such as a spouse, would cover day to day expenses, then you might wish to consider a Lifetime ISA (LISA) which often provides greater rates of return if you can lock them in for a period of time.
For those who are yet to begin saving, now is the time, even if you can only start small, it’s amazing how soon this can grow.
It’s never too early to start saving into a pension, and the benefit, if you are employed, is that your employer has to contribute to this. Deductions taken from your salary are not liable to tax and national insurance as it is deducted before this is calculated so not only do you benefit from lower tax payments but you are earning extra money too which will make all the difference in later life!
For business owners who pay themselves via a combination of salary and dividends, setting up a private pension is another way for you to provide yourself with a tax-efficient income. Pension contributions via your business are tax-deductible and as a result, will reduce your corporation and self-assessment tax liabilities.
For those over 55, pensions funds can be accessed to some extent for cash if needed. The downside is that these funds are meant for retirement and to access early will deplete the values. However in the absence of other funds, one can access 25% of their pension fund tax-free and still have the potential to pay in £40k p.a. to help pay back the borrowed amount over time.
Planning for the future
While we don’t know what the future might hold, the events of 2020 have shown us that life is unpredictable and more importantly that we should not hold off from achieving our goals.
Whether it’s becoming mortgage-free, having enough money to retire early, travel around the world or paying for a child or grandchild’s education, our team of experts can help you achieve your financial aspirations.
Contact us today for a no-obligation discussion about how to get your personal finances in order to help plan for your financial future.