There is no doubt that experiencing lockdown has been hard both emotionally and financially for us all over the last year. For those who are lucky enough to have saved money due to lower spending during this time, there are opportunities to put that money to good use. No commuting costs or going out for lunches and the lack of after-work luxuries like drinks and shopping trips has meant people’s income is now over exceeding their spending; even some people on furlough are finding they have money left over each month.
If you are one of the millions of people who have now become lower spenders, what are you planning to do with your money? We have some ideas that may help you when things bounce back to ‘normal’, and the spending begins to rise again.
Set up an emergency fund
Everyone should have an emergency fund, but not many do. If you were hit with an unexpectedly high bill, would you have the funds available to pay for it? It would help if you aimed to have around one months’ worth of essential spending in an instant access cash savings account. Essential spending refers to your bills, such as your mortgage and utilities. It would be best to look for an account that gives the best interest rate and doesn’t have penalties for withdrawals.
A longer-term emergency fund is also recommended; this can be 3-6 months of your income. After the events of last year, many have seen how easily things can change, and you could be left without a job or unable to work due to illness at any time in your life. This larger emergency fund would provide you with financial help if the worst were to happen. You should consider putting some of it in a notice account but leave enough in instant access to cover you for the short term.
Put money away for your children and grandchildren
Having children can be costly; we all want the best for them, so saving for their future is very important. Even if you are not yet parents, but you are planning to be in the future, why not begin putting some money away for education fees (university and private education), childcare, helping them get on the property ladder and money for special occasions. Why not use the extra money you are saving to benefit your children. You may also be eligible for tax-free childcare: https://www.gov.uk/tax-free-childcare if you aren’t part of this scheme, maybe you should consider it. Also, if you are on the old childcare vouchers scheme increase your contributions to the maximum to bank money up for future childcare. As parents throughout the years, there will be ongoing costs, and this money you save away will help you when these situations arise.
If you are grandparents, it will be an excellent opportunity to help your children with theirs. If your grandchildren are young, you could begin adding some money into a JISA (Junior ISA) ready for them when they are 18, or you could put money aside for them to use for special birthdays or for once they leave education.
Add more money to your pension
The more money available to you once you retire, the more comfortable you will be. Retirement may seem a long time away for you, but it may soon catch up on you, and when it does, you will want to achieve your retirement objectives. Every contribution you make will get an automatic boost of at least 20% due to tax relief and benefit from tax-free growth and compound interest over a long period.
Overpay on your mortgage
Many can overpay on their mortgage each month; the benefit of this is you will pay off your debt a lot faster. The quicker you pay off your mortgage, the less interest you will pay. Paying off your mortgage too quickly can result in an early repayment fee, so get in touch with your mortgage provider and see how much you can pay off without facing this charge. Paying off your mortgage faster can be way more beneficial than adding to a savings account, as the interest you are being charged is way higher than the interest you will gain when adding to an account. It is a long-term investment, and you will appreciate the extra money once it is all paid off.
Spend on things you really need
The lockdowns have shown us all how much money we were wasting day to day on those expensive lunches and takeaway coffees. Why not use this time to evaluate what you genuinely want to put your extra money towards? Does your home need some renovations? Is your car due for an upgrade? Do you finally get to go on your dream holiday? It would be nice for you to take advantage of a negative situation and use it to achieve your goals.
If you need some advice about how best to spend the extra money you may now have available to you, or if you want some help with achieving your financial goals, we can help. Please get in touch.