At a glance

  • While many households have taken a big financial hit as a result of the coronavirus crisis, others have seen their costs fall and savings rise
  • The depth and scale of the crisis has offered a reminder of how vulnerable our finances can be to unexpected events
  • From rainy days savings to taking out insurance, there are several steps we can take to build financial resilience

At a glance

  • While many households have taken a big financial hit as a result of the coronavirus crisis, others have seen their costs fall and savings rise
  • The depth and scale of the crisis has offered a reminder of how vulnerable our finances can be to unexpected events
  • From rainy days savings to taking out insurance, there are several steps we can take to build financial resilience

At a glance

  • While many households have taken a big financial hit as a result of the coronavirus crisis, others have seen their costs fall and savings rise
  • The depth and scale of the crisis has offered a reminder of how vulnerable our finances can be to unexpected events
  • From rainy days savings to taking out insurance, there are several steps we can take to build financial resilience

Few of us could have foreseen exactly how our finances would be affected when the coronavirus crisis unfolded in the UK. With governments and regulators quick to put protective measures in place, such as mortgage holidays and small business loans, the real impact may not have been immediately apparent.

Months later, as governments have reintroduced social restrictions in a bid to contain an upsurge in cases, most households will have formed a better idea of how their finances are faring amid the ongoing crisis.

And while for many the outlook is desperate, experiences have varied hugely. At one end of the spectrum there are redundancies, spiralling debts and homelessness fears. At the other end are those that have benefited, with spending down and savings up. And right across the board there has been a renewed focus on our financial wellbeing.

So what have we learned from the past few months?

Perhaps most obviously, we’ve had a sharp reminder that we never know what’s around the corner or how events will impact us. Secondly, even those who are relatively secure can be closer to the edge than they realised. A fifth of people surveyed by Yorkshire Building Society said their savings would last less than a month, putting their ability to cover basic expenses at risk.

Many have also gained a clearer understanding of how their money is spent. With socialising curtailed, holidays cancelled and fewer people commuting, the subsequent savings boost has amounted to a form of pay rise. The UK savings ratio – the percentage of disposable income saved in a household – leapt from 9.6% in the first three months of 2020 to 29.1% in the second quarter.

With many of us paying more attention to our finances, what can we do to make them more crisis-proof? Here are some options:

Build a shelter: Financial advisers typically recommend keeping between three and six months’ worth of essential expenses in a rainy-day fund. That will be unrealistic for many, but putting anything you can save into an emergency pot will bolster your resilience. One approach is to use mobile phone apps that calculate what you can afford to put aside each month and divert that amount into a separate savings account.

Get into the budgeting habit: Maintaining a record of what you have coming in and what you spend can help you keep track of your finances and manage them more effectively. Again, there are apps that help you view all your accounts in one place, making it easier to analyse spending patterns, set goals and monitor progress over time.

Protect your income: Even a rainy-day savings pot will probably be insufficient to cover household costs in the event of being unable to work because of illness or an accident. Income protection insurance is designed to bridge that gap, typically paying out between 50% and 65% of income each month (and usually for as long as it’s needed) if illness or an accident prevents you from getting your payslip.

Clear your debts: Repaying any outstanding debts should take priority over saving. Clear the most expensive first (such as credit cards and payday loans) and, if you’re struggling, seek help from free sources of debt advice, such as your local Citizens Advice Bureau or the StepChange Debt Charity (www.stepchange.org / 0800 138 1111).

Act on good intentions: Could money saved over the past few months go towards some longer-term plans? From starting or increasing your pension contributions to building a first-home deposit or reducing outstanding mortgage debt, now might be a good chance to lay firmer foundations for later on.

Few of us could have foreseen exactly how our finances would be affected when the coronavirus crisis unfolded in the UK. With governments and regulators quick to put protective measures in place, such as mortgage holidays and small business loans, the real impact may not have been immediately apparent.

Months later, as governments have reintroduced social restrictions in a bid to contain an upsurge in cases, most households will have formed a better idea of how their finances are faring amid the ongoing crisis.

And while for many the outlook is desperate, experiences have varied hugely. At one end of the spectrum there are redundancies, spiralling debts and homelessness fears. At the other end are those that have benefited, with spending down and savings up. And right across the board there has been a renewed focus on our financial wellbeing.

So what have we learned from the past few months?

Perhaps most obviously, we’ve had a sharp reminder that we never know what’s around the corner or how events will impact us. Secondly, even those who are relatively secure can be closer to the edge than they realised. A fifth of people surveyed by Yorkshire Building Society said their savings would last less than a month, putting their ability to cover basic expenses at risk.

Many have also gained a clearer understanding of how their money is spent. With socialising curtailed, holidays cancelled and fewer people commuting, the subsequent savings boost has amounted to a form of pay rise. The UK savings ratio – the percentage of disposable income saved in a household – leapt from 9.6% in the first three months of 2020 to 29.1% in the second quarter.

With many of us paying more attention to our finances, what can we do to make them more crisis-proof? Here are some options:

Build a shelter: Financial advisers typically recommend keeping between three and six months’ worth of essential expenses in a rainy-day fund. That will be unrealistic for many, but putting anything you can save into an emergency pot will bolster your resilience. One approach is to use mobile phone apps that calculate what you can afford to put aside each month and divert that amount into a separate savings account.

Get into the budgeting habit: Maintaining a record of what you have coming in and what you spend can help you keep track of your finances and manage them more effectively. Again, there are apps that help you view all your accounts in one place, making it easier to analyse spending patterns, set goals and monitor progress over time.

Protect your income: Even a rainy-day savings pot will probably be insufficient to cover household costs in the event of being unable to work because of illness or an accident. Income protection insurance is designed to bridge that gap, typically paying out between 50% and 65% of income each month (and usually for as long as it’s needed) if illness or an accident prevents you from getting your payslip.

Clear your debts: Repaying any outstanding debts should take priority over saving. Clear the most expensive first (such as credit cards and payday loans) and, if you’re struggling, seek help from free sources of debt advice, such as your local Citizens Advice Bureau or the StepChange Debt Charity (www.stepchange.org / 0800 138 1111).

Act on good intentions: Could money saved over the past few months go towards some longer-term plans? From starting or increasing your pension contributions to building a first-home deposit or reducing outstanding mortgage debt, now might be a good chance to lay firmer foundations for later on.

Few of us could have foreseen exactly how our finances would be affected when the coronavirus crisis unfolded in the UK. With governments and regulators quick to put protective measures in place, such as mortgage holidays and small business loans, the real impact may not have been immediately apparent.

Months later, as governments have reintroduced social restrictions in a bid to contain an upsurge in cases, most households will have formed a better idea of how their finances are faring amid the ongoing crisis.

And while for many the outlook is desperate, experiences have varied hugely. At one end of the spectrum there are redundancies, spiralling debts and homelessness fears. At the other end are those that have benefited, with spending down and savings up. And right across the board there has been a renewed focus on our financial wellbeing.

So what have we learned from the past few months?

Perhaps most obviously, we’ve had a sharp reminder that we never know what’s around the corner or how events will impact us. Secondly, even those who are relatively secure can be closer to the edge than they realised. A fifth of people surveyed by Yorkshire Building Society said their savings would last less than a month, putting their ability to cover basic expenses at risk.

Many have also gained a clearer understanding of how their money is spent. With socialising curtailed, holidays cancelled and fewer people commuting, the subsequent savings boost has amounted to a form of pay rise. The UK savings ratio – the percentage of disposable income saved in a household – leapt from 9.6% in the first three months of 2020 to 29.1% in the second quarter.

With many of us paying more attention to our finances, what can we do to make them more crisis-proof? Here are some options:

Build a shelter: Financial advisers typically recommend keeping between three and six months’ worth of essential expenses in a rainy-day fund. That will be unrealistic for many, but putting anything you can save into an emergency pot will bolster your resilience. One approach is to use mobile phone apps that calculate what you can afford to put aside each month and divert that amount into a separate savings account.

Get into the budgeting habit: Maintaining a record of what you have coming in and what you spend can help you keep track of your finances and manage them more effectively. Again, there are apps that help you view all your accounts in one place, making it easier to analyse spending patterns, set goals and monitor progress over time.

Protect your income: Even a rainy-day savings pot will probably be insufficient to cover household costs in the event of being unable to work because of illness or an accident. Income protection insurance is designed to bridge that gap, typically paying out between 50% and 65% of income each month (and usually for as long as it’s needed) if illness or an accident prevents you from getting your payslip.

Clear your debts: Repaying any outstanding debts should take priority over saving. Clear the most expensive first (such as credit cards and payday loans) and, if you’re struggling, seek help from free sources of debt advice, such as your local Citizens Advice Bureau or the StepChange Debt Charity (www.stepchange.org / 0800 138 1111).

Act on good intentions: Could money saved over the past few months go towards some longer-term plans? From starting or increasing your pension contributions to building a first-home deposit or reducing outstanding mortgage debt, now might be a good chance to lay firmer foundations for later on.

References

1.Yorkshire Building Society, Pandemic has widened UK financial wellbeing gap, new research shows, September 2020 https://www.ybs.co.uk/media-centre/covid-savings/index.html
2. ONS, Coronavirus and its impact on the UK Institutional Sector Accounts: Quarter 2 (Apr to June) 2020’ https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/coronavirusanditsimpactontheukinstitutionalsectoraccounts/quarter2aprtojune2020

Get some guidance: With so much going on it can be hard to think clearly about matters such as money. Financial advisers can take the emotion out of it for you, helping you see the bigger picture and working out a roadmap for the future, giving you long-term peace of mind.

References

1.Yorkshire Building Society, Pandemic has widened UK financial wellbeing gap, new research shows, September 2020 https://www.ybs.co.uk/media-centre/covid-savings/index.html
2. ONS, Coronavirus and its impact on the UK Institutional Sector Accounts: Quarter 2 (Apr to June) 2020’ https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/coronavirusanditsimpactontheukinstitutionalsectoraccounts/quarter2aprtojune2020

Get some guidance: With so much going on it can be hard to think clearly about matters such as money. Financial advisers can take the emotion out of it for you, helping you see the bigger picture and working out a roadmap for the future, giving you long-term peace of mind.

References

1.Yorkshire Building Society, Pandemic has widened UK financial wellbeing gap, new research shows, September 2020 https://www.ybs.co.uk/media-centre/covid-savings/index.html
2. ONS, Coronavirus and its impact on the UK Institutional Sector Accounts: Quarter 2 (Apr to June) 2020’ https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/coronavirusanditsimpactontheukinstitutionalsectoraccounts/quarter2aprtojune2020

Get some guidance: With so much going on it can be hard to think clearly about matters such as money. Financial advisers can take the emotion out of it for you, helping you see the bigger picture and working out a roadmap for the future, giving you long-term peace of mind.

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