By Warren Shute @warrenshute
Despite what people think, financial planning is not just for the wealthy. I’ve been a financial planner for over 25 years, and I help all kinds of people make smarter decisions about money – something we’re all going to need to do a lot more of in the fallout from lockdown.
I’ve made it my mission to help one million people get control of their finances and enjoy freedom from worrying about money. If you have a money strategy, when life throws you a financial curveball, you’re in a better place to handle it.
Clearly, there are a lot of curveballs around right now, and plenty more to come. With a recession looming, it’s time to get the basics right and be smart about your money.
The first thing you’ve got to do is work out what’s coming in and what’s going out. If you’re struggling financially, or anticipate you will be soon, it’s so easy to bury your head in the sand and ignore the problem. It’s also the worst thing you can do.
Nothing will change unless you make it, so face things head on. List out all of your income and outgoings every month (some of the online-only banks can automate this process for you) so you know where you stand. You might even find Direct Debits for things you stopped using long ago!
Go through each item of expenditure and ask yourself three things: do I need this? Do I want this? Can I get it cheaper elsewhere?
Unless you plan to rely on savings, there’s simply got to be more coming in than going out, which might mean some tough choices and some cuts you don’t want to make. If that means postponing your phone upgrade or cutting your TV package, then that’s what you’ve got to do.
Remember this isn’t forever, it’s to get you through the uncertainty until you’re back on an even keel.
At the same time, think about any ways you can improve your earnings. Most of us have spent a lot of time in our home going through things – thanks to the likes of eBay and Facebook, it’s never been easier to sell unwanted items online.
If you’re on a modest income, have lost your job or have children, use the website entitledto.co.uk to check your eligibility for any benefits. It’s a great resource that may surprise you.
And if you’re spending a lot of time at home, consider any online training or upskilling you could do to improve your salary in the future.
Big Save – Control your spending: 5 things you need to know
Get a grip on your money with the Bank Accounts System, which takes emotion out of everyday financial decisions.
- Set up two accounts, one for bills and another for personal spending.
- Arrange ALL your regular payments to come out of your bills account. Be honest with yourself: do I need this, do I want this, can I get it cheaper?
- Put some WAM into your life: your weekly Walk About Money, which pays for all your variable spending like groceries, drinks, haircuts etc. Work out how much you need (or have left) to spend in a month after your bills, divide it by four, that’s your weekly WAM.
- Set up a payment every Wednesday for this amount from your bills account to your spending account. Why Wednesday? It’s not too long to wait after the weekend.
- Your WAM is your allowance; it’s finite. DON’T dip into your bills account for more. It’s not too long to wait for next Wednesday!
This system gives you boundaries that stop you overstretching: if you can’t afford something, save a little of your WAM each week until you can.
- I have been offered the Self-Employed Income Support Grant, is it worth claiming?
If you’ve been adversely affected by the lockdown, yes. It’s a taxable grant of 80% of your average profits over the last three years, capped at £2,500 per month covering March, April and May, you need to claim by 13 July. Rishi Sunak announced on Friday 29 May a second and final payment of 70% of your average profits capped at £2,190 per month and this opens in August. Just remember that it’s taxable – set aside your income tax so you don’t get a shock when you complete your self-assessment.
2. My teenage son wants to invest in the stock market, what do you recommend?
Investing in the stock market comes with risks, but arguably it’s a good time to start looking when you’re young. An investment fund that follows a world index is a good place to start and don’t try to outsmart the stock market by timing your investments. You can protect the invest from paying any tax by using a Junior Individual Savings Account or JISA which has a £9,000 annual limit.
3. What is a recession, and should I be worried?
A recession is when an economy contracts over a period of six-months or more. It’s usually measured by a fall in Gross Domestic Product (GDP), the sum of the value of goods and services produced in the economy.
Often unemployment rises so job losses make life difficult for individuals and the country.
4. Are Premium Bonds a safe place for my money?
National Savings and Investments Premium Bonds are backed by HM Treasury, so they are as safe as you can get in the UK however, whilst inflation and interest rates are low, they offer a good home for your emergency savings, but you won’t see any real long-term growth on your money, so they are less ideal for long term money.
For further money advice and download guides go to warrenshute.com