By JASON BUTLER
For many people around the world the pandemic and associated lockdown has been nothing short of a disaster for their personal finances. It’s s anyone’s guess how long it will take for those who are most affected to recover.
Beyond the immediate financial shock, no one knows how the pandemic will affect world economies and the outlook for jobs, stock markets, health and housing costs over the medium to longer term. But what we do know is that humans are resourceful, adaptable and industrious and new challenges also present new opportunities. Might we see an acceleration of green technology, more home working, less menial work, higher productivity and more leisure time?
The late Hans Rosling is one of my heroes because he was a big exponent of understanding, optimism and making decisions based on proper facts. To get an idea of his approach, check out this 2014 talk he did with his son Ola. Humans might have many problems, challenges and some unpleasant attributes. But if history is a guide, we will continue to improve the living standards and general wellbeing of billions of people over the coming decades.
If you are one of the many people who haven’t been poleaxed by the lockdown, I would urge you to take some time out to rethink your relationship with money and what you spend your money on.
If you are entirely happy after that reflection time, then all good. But could you make some changes to your working, spending, saving, investing and borrowing habits, routines, behaviours and impulses? Could those changes make you happier and healthier and less stressed and worried? Then now is the time to act.
You might have ideas on how you can make positive changes, but here are some suggestions to help you.
DIVERT THE FURLOUGH REDUCTION
If you’ve been getting by on 80% furlough pay but go back to 100% of your salary, divert some or all of the 20% difference into getting rid of non-mortgage debt. You could also use it to increase your emergency fund or boost pension contributions. The sooner you clear debt, the sooner you can increase savings and investing to build your financial assets.
SELL OFF YOUR UNUSED STUFF
I’ve just got £100 from Apple for trading in my six-year-old MacBook Pro (it was as slow as our old Border Collie Jet), which had sat unloved in the corner of my office for two years. As well as reducing the cost of my new MacBook, it avoids the old device going to landfill and someone else gets to use an affordable laptop. Check out what you could sell.
GET THE FREE MONEY YOU’RE ENTITLED TO WHILE YOU CAN
Make sure you’re getting the maximum employer contributions to your pension, particularly if they pay more than the 3% minimum on top of the 5% employee minimum you must pay. Some employers match your contributions up to a certain amount, so it’s a bit like additional (but deferred) pay. On top of this, you get tax relief at your highest rate, but as to how long that will continue is questionable with the increase in state debt associated with the pandemic.
FREE MONEY FOR YOUR KIDS
Think about putting something into a personal pension for your children. Although they don’t pay income tax, they’ll still be given tax relief of 25% on whatever you contribute up to £2,880. That’s up to £720 of FREE money.
STOP OLD COSTS IN THEIR TRACKS
Do you really need to pay that gym membership fee that has been frozen for months? Do you really need a new car finance agreement when your current one finishes? Or could you buy an older car and use the monthly payment you don’t pay to improve your finances? Think carefully about any unnecessary expenses that you’ve been doing without during lockdown, and whether you really need to resume that spending.
GET SERIOUS ABOUT CHARITABLE GIVING
Whether it’s Give As You Earn (GAYE) through your employer or Gift Aid cash donations to charities or a Charity Giving Account, as long as you pay income tax your gift gets increased by 25% in the hands of the charity. Charitable giving via Gift Aid also has the effect of expanding your basic rate income tax band which might lower your income tax and, if you have taxable gains, capital gains tax.
You can also make a donation now and have this carried back to the previous tax year, as long as it is made on or before the time you submit your previous year’s tax return. The deadline for online submission is 31st January 2021.
RESURRECT YOUR OLD TAX CREDITS AWARD
Unlike Universal Credit (UC), the old-style Tax Credits are not means tested but based on a range of factors including household taxable income, working hours, number of children and health status. Millions of people who claimed Tax Credits years ago when they were earning less but have been receiving NIL Tax Credit payments in recent years because their income was too high.
If that applies to you, then you might now qualify for Tax Credit payments. That’s as long as HMRC hasn’t notified you that you’ve been taken out of the Tax Credit system due to not qualifying for some years, and if you expect your income in 2020/21 to fall by at least £2,500 from what it was in 2019/20. Tax Credit can affect your entitlement to other state benefits so, if in any doubt, do take advice. You can find more information and a benefit calculator here.
It’s easy to slip back into old spending pattens, but just as easy to create or sustain new ones which are good for your personal finances and your general financial wellbeing. Use the easing of the lockdown to reset your future spending so it serves you well.
JASON BUTLER is a former financial planner, based in Suffolk. He is a personal finance columnist for the Financial Times, and is Head of Financial Education at Salary Finance. You can find out more about him on his website.
If you’re interested in reading more from Jason, here are a few of the other articles he’s contributed to TEBI: