As I mentioned last week, we're among the many households that are losing income as a result of the current situation with COVID-19 - thanks to the work we put in a few years ago to pay off our mortgage early, we are in far better circumstances than many to cope with this, but still, we have lost over 30% of our income, and that in itself means that a bit of planning was required ready for the end of the month.
Our first step was to write down everything we pay for currently in a month - and total them up. That included money that we would usually send to savings - it's a full picture of our own financial position in an average month. The fact that we budget for a lot of our spending right across a year rather than paying things as they arise out of that month's pay helped here - for two reasons. Firstly we tend to run at a bit of surplus in some areas - our car account is a good example, we know that there is already enough money sitting there for our car insurance and breakdown cover renewals which will happen in August, even if we were unable to save anything further there for several months. Secondly though, the very fact that we DO budget means that we know how much we spend on things like food each month, and that in itself helps when it comes to working out what money we need to meet our basic requirements.
Once we had our total we could see how far short we were with the revised income to be able to meet the same expenditure next month - and as we work to a zero baseline (every penny is spoken for whether on expenditure or savings) that figure was larger than ideal - however this is the point at which you start going through to work out what can be reduced. For us the first port of call on this was our personal spending money (as we're not going anywhere), diesel money (as we're not going anywhere) and money for travel (as we're not...oh, you get the picture!). Once we worked out how much we would be reducing our outgoings by with those bits, the final step for us was to reduce the amount going to savings - again there though we needed to work through priorities.
We've been diverting our monthly surplus towards rebuilding the account we think of as our "emergency fund" - although in the traditional sense it's not purely reserved for emergencies only. Ours had taken a battering early last year as a result of the much needed electrical works we had done and then the sooner-than-planned need to replace my car. Half the cost of the replacement car got put onto a 0% credit card - although we had the full cost saved it made more sense to keep that money in our account for as long as possible - but the remainder had to be paid out at the time of purchase. We've been gently rebuilding ever since with a combination of the monthly surplus, some lump sums from maturing regular saver accounts, and the council tax & water rates payments from February & March. Now though that will grind to a halt for a while. The same applies to additional money going to our long term savings too.Our two regular saver accounts we plan to continue contributing to as normal for as long as possible - we can still just about stretch to the usual amount going there for the time being, and they are our only savings accounts with half decent interest rates currently - so while we can, they are our priority for the money we can still save each month.
If like many you aren't in a position where it's only savings that will be affected by a drop in income, then you first need to prioritise. Do your sums to start with - if you can afford to make ends meet, allowing for the reduction in general spending, commuting costs etc, then do so. As we have said before - priorities are mortgage or rent, council tax, heat, light, water, and food. If you absolutely need to then you may be able to get a payment holiday for up to three months of mortgage payments - but please only do this if you have to as it will add cost to the end of your loan. Similarly with deferring rent payments - remember that it will have to be paid eventually so be sure you are confident that you will be able to catch up. If you are struggling to make debt payments to unsecured debts - loans, or credit cards - then contact the lenders, let them know you have had a reduction in income and ask that they freeze interest until the COVID-19 crisis is declared over. Some will - we've already seen examples of this If you are currently using an overdraft then there are changes coming to these that will benefit you also - and many high street banks are delaying the introduction of higher interest charges here, also. You can also go through your budget to see where else you might want to save - this is a decent time to make sure you're not overpaying on utilities for example, and as switching is automated there shouldn't be a problem with changing if needed either. For a lot of people - and particularly at the moment, a short term saving can also be made on food shopping - it feels like I saw this every time I write one of these, but audit your freezer, fridge, cupboards and larder/storecupboard if you have one - get a full list of everything you have in, plan meals using those items, prioritising anything that needs using up quickly, and then make a shopping list for ONLY the items you actually need. Not only will it cut your spending, it will cut your food waste as well - a win on all counts.
Remember that this situation will end eventually and hopefully for many the financial side of things will then revert to normal - however the actual timescale for this is currently incredibly uncertain. A lot of the key financial support packages are in place for an initial three month period, so it's probably sensible to assume that we could be looking at this sort of timescale. Budget accordingly, but be prepared to adjust as time goes on. If you haven't currently had a drop in income, then plan and act as though you have - stash aside any spare money you can save as this future-proofs you to a degree should the worst happen.
Robyn
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