COVID-19: Ways to managing your personal finances
May 06, 2020
The impact of Covid-19 has been extremely tough on many of us, and one of the hardest aspects is working out how to manage your personal finances, in order to survive either as an individual or as a family.
You may be struggling with a reduced employment income and increased uncertainty about your future. However there may be some actions you could take which could make a difference when addressing your personal finances.
Build up cash
Prepare a budget
The starting point is to create a budget on a monthly or weekly basis showing any expected money you have coming in (from employment, benefits, savings etc) plus what bills and expenses you are likely to incur. This way you can understand the facts of the situation before deciding what needs addressing and how much of a gap there is to fill. It is logical that if your employment income has reduced then your expenditure may well also need to be reduced.
Reduce costs where possible
The initial response to having a reduced income is to reduce household expenditure. Some of your expenses such as travel and eating out will already have reduced anyway, as a result of the lockdown. You can also stop spending on non-essential items for the time being, and try to save some cash where you can. Examples include:
- Cancelling gym membership
- Cancelling TV sport packages (given there is no sport being played)
- Travel season tickets can be part-refunded for the portion which is not being used
- Prepaid nursery fees or exercise classes may not be refundable but is worth checking, even if it means the payments can be converted into credit for the future when they can be used
Build up cash
Given the travel restrictions, many holidays and other future activities can no longer go ahead. So there may be booking refunds available or insurance claims to be made. Securing these will help generate cash.
Most banks will now waive the redemption fee on cash held in a fixed term savings accounts which is another way to gain a buffer in difficult times. Try not to dip into your savings unless it’s absolutely necessary as this will help your personal finances in the longer term.
Another option available to people with good credit history is to take out a ‘0% on purchases’ credit card, which can give 0% interest on purchases made for 12, 18 or 24 months. This is only a temporary measure and you need to be confident you can repay the amount at the end of the term as this is effectively taking on additional debt – albeit at 0% interest.
Universal credit, the UK government’s social security payment, now covers most of the benefits available to individuals. There is a detailed guide available on Gov.uk which covers all considerations of Universal Credit. The key points are:
- A change to working hours / pay may mean that an individual can claim an increased Universal Credit payment
- Self-employed and zero-hour contract workers can receive Universal Credit
- The typical 5-week lag before receiving payments for Universal Credit can be shortened by an emergency Universal Credit loan which is then paid off by future Universal Credit payments
Job Seekers Allowance
Those who have lost their job may be eligible for ‘New Style Employment and Support Allowance’. This applies to people who have been employees (not self-employed) in the last 2 or 3 years. More information is available on the Gov.uk website.
If your income has dropped below £50,000 as a result of Covid-19, you may now be eligible to claim child benefit without having to pay the High Income Child Benefit Charge. Child benefit is now worth £21.05 a week for the eldest child and £13.95 for each additional child. Read the full details in our separate article.
The next deadline for self-assessment tax is 1 July 2020 for your second payment on account. This can now be deferred until 31 January 2021 which gives you a cash boost for the next 6 months, but do remember this tax will still need to be paid when it’s due next year.
Working from home allowance
If you are required to work from home, possibly as a result of the lockdown, employers may choose to pay a working from home allowance to their employees. This can either be a flat rate of £6 a week or £27 a month tax free, or it can be calculated as the directly incurred increase in expenses.
Banks have been required to provide 3 months mortgage relief to borrowers as a result of Covid-19. You should contact your lender directly and in many cases this can be done online. Don’t cancel the direct debit to your bank though, as this will be classed as a missed payment and will be recorded on your credit file. Eligibility criteria are that mortgage payments must be up to date and that you have been impacted by Covid-19 (self-certified). Interest will still accrue on the mortgage for the 3-month period but no cash payments are needed to be made.
Other options which may be worth considering are switching to an interest only mortgage or extending the term of your mortgage.
The government has brought forward protections for private and social renters, so that landlords now have to give tenants three months’ notice if they intend to seek possession (i.e. serve notice that they want to end the tenancy). This legislation is in force until 30 September 2020 but may be extended.
If you’re having difficulty paying your rent then you should communicate with your landlord and reach an agreement. Your landlord can apply for the three month mortgage relief mentioned above, which would be expected to be passed on to the tenant.
If you’ve not already done so, this may be a good opportunity to shop around for new gas, electricity, water and broadband providers to save money. Remember though that if a physical installation needs to take place then it won’t be possible to do so until after lockdown is lifted.
The Money Saving Expert has a helpful guide on household costs during Covid-19.
Many councils have been quite accommodating with individuals who are struggling to pay their council tax. There is no country wide standard for this though, so it is a case of reviewing your local council’s website and approaching them directly to see what help they can provide.
Credit Cards / Personal Loans / Overdrafts
The FCA has recently brought in a series of measures to support individuals who have personal finance. The summary terms are:
- Offer a temporary payment freeze on loans and credit cards for up to three months, for consumers negatively impacted by coronavirus
- Allow customers who are negatively impacted by coronavirus and who already have an arranged overdraft on their main personal current account, up to £500 charged at zero interest for three months
- Make sure that all overdraft customers are no worse off on price when compared to the prices they were charged before the recent overdraft pricing changes came into force
- Ensure consumers using any of these temporary payment freeze measures will not have their credit file affected
If you have a permanent / large balance on a credit card then you have two main options available:
- If possible, do a 0% balance transfer to another credit card: or
- Speak to your credit card company, explain that you have been impacted by Covid-19 and try to reach an arrangement
Car Finance / Pay Day Lenders
The FCA has also brought in measures to protect consumers who have the following financial products:
- Motor finance – Firms are required to provide a three month payment freeze to customers who are having temporary difficulties meeting finance or leasing payments due to coronavirus. Firms are also expected to act fairly if your lease has come to an end and you cannot make the balloon payment.
- High-cost short-term credit (including payday loans) – Firms are required to provide a one month payment freeze to customers facing temporary payment difficulties due to the coronavirus pandemic. No additional interest should be charged to the customer as a result of the payment freeze.
- Other credit products – Firms that provide Rent-to-own, Buy-now-pay-later, or pawnbroking agreements must provide a three month payment freeze to customers facing payment difficulties due to coronavirus. Pawnbrokers should agree not to sell an item for the three month period.
Self Employed Income Support Scheme
The government’s scheme to support the self-employed is intended to protect you if you have suffered a loss in income. In this instance, you will receive a taxable grant worth 80% of your average annual profits calculated over a three month period, up to a cap of £2,500 per month. Read the full details about this scheme in our separate article.
If the MOT is due on your car, van or motorcycle on or after 30 March 2020 then this expiry date will be extended by 6 months. However you must ensure that the vehicle is kept safe to drive.
Vehicles that are not on the road don’t need to be insured. If a vehicle is no longer needed you can apply for a Statutory Off Road Notification (SORN) to officially declare it ‘off road’ indefinitely (assuming it can be parked on private property). Once it is certified, the insurance and road tax no longer need to be paid and any refunds can be reclaimed.
If you would like any help in finding ways to manage your personal finances due to the coronavirus crisis please contact us and we’ll be happy to help.