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With some people financially better off in lockdown, Hannah Duncan looks at why now could be the time to use that money wisely.
This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
Lockdown has been an eye-opener for lots of us.
We’ve stopped taking things for granted. Like spending time with our friends, and family. The NHS and other key workers. Or the local businesses which brighten our streets.
It’s also highlighted areas of our lives that needed to improve – like taking better care of our health, not living paycheque to paycheque, relying on credit or impulse buying.
For many, lockdown has caused a spending detox, and time for reflection. If we keep it up, it could be the start of a fabulous financial future.
Across the UK, too many people were dealing with a potential financial fiasco, even before the pandemic.
At the start of lockdown, nearly half of British households had less than £1,500 in savings. More worryingly, for every adult in the UK, there’s an average of £4,264 in unsecured debt.
But lockdown has changed the way many of us view our money.
Lots of us have been spending less than usual. In fact, according to our recent survey, those who said they’ve been spending less have, on average, each saved a healthy £581 in the first three months of lockdown.
In the wake of coronavirus, nearly three quarters of us plan to change our spending habits long term. The most common change people plan to make is going out less, followed by making fewer impulse purchases and buying fewer clothes.
Source: HL Spending during COVID-19 survey of 2,000 UK adults June 2020.
|Going out less||32%||31%||33%|
|Less impulse spending||31%||27%||35%|
|Buying fewer clothes||30%||23%||36%|
|Buying fewer little treats||21%||19%||22%|
|Spending less on food during the working day||15%||14%||15%|
|Cutting down on alcohol consumption||13%||15%||10%|
|Cutting out regular expenses like the gym||10%||19%||11%|
Money can’t buy happiness. Most of us will have heard this phrase at some time in our lives.
Maybe it’s true. But not having enough money can be destructive for our wellbeing.
A report from the Centre for Economics and Business Research suggests that people who consistently have a savings account are 6% more likely to score higher for life satisfaction.
Saving and investing around 20% of your take home salary – as former presidential-hopeful Elizabeth Warren advises – could help you build an emergency safety net and bring peace of mind.
Covid-19 has had a devastating impact on millions of people across the globe. It’s caused too many deaths and pain from losing the ones we’ve lost. We should never forget or gloss over that.
But it would be great if lockdown was the catalyst for something positive – like some ending up more financially resilient.
If you’re finding you have a little spare cash over at the end of the month, now could be the time to use it wisely.
The first step everyone should take is to pay off credit card bills and other short-term debts, like store cards or car finance. This should be a priority. They often have high interest payments and can spiral out of control if you’re not careful. So, it’s best to pay off these as quickly as possible.
This is your safety net to cover the unexpected – a boiler repair, your car breaking down or losing your job. You need to be able to access this money quickly – so easy access cash accounts are the best place to keep this money.
You should aim to have a cash emergency fund worth 3-6 months’ of expenses when you’re working and 1-3 years of expenses when you’re retired – far more than many of us currently have.
If your financial goals are 5 years away or more, cash isn’t always the best option. Inflation is the general rise in prices of the things we pay for, this means the cash we have today won’t have the same buying power tomorrow. Over time, this can really add up.
While some cash products might be able to give you the chance to keep up with or even beat inflation, investing could give you a better chance of growing your money over the long term. However unlike with cash savings, the value of investments goes up and down which means you can get back less than the amount you originally invest.
A Stocks and Shares ISA is one of the best ways to invest for the future, there’s no UK income or capital gains tax to pay on your investments held in an ISA.
You don’t need a lot of money to get started. With HL, you can start with £100, or £25 per month. Over time, this can build up to a sizeable pot.
For example, with a growth rate of 5% a year (after charges), if you started investing £100 a month, you could have more than £40,000 after 20 years.
Of course, the amount you end up with depends on the performance of the investments you choose. These figures don't take inflation into account – this could reduce the amount of goods and services money can buy in the future.
This tax year the maximum amount you can put into an ISA is £20,000. Tax rules can change and benefits depend on individual circumstances.
When investing it’s important not to put all your eggs in one basket. Spreading your money, diversifying, gives you access to more opportunities and can reduce risk by investing in more individual areas or markets.
For inspiration, you can see our new Wealth Shortlist. It’s designed to help build and maintain well-balanced and diversified portfolios. We’ve put funds under the microscope to make sure the list only contains the funds that our in-depth analysis shows have the greatest long-term performance potential.
To use the Shortlist, you should:
For investors who don't feel comfortable building and maintaining a portfolio we offer ready-made portfolios, which are aligned to broad investment objectives. You will need to regularly review the portfolios to ensure it remain suitable for your needs and objectives. For anyone who wants personalised recommendations, you can also ask us for financial advice.
This article isn’t personal advice. If you’re not sure whether an investment is right for you, please speak to a financial adviser.
Hannah Duncan is an investment writer, and founder of Hannah Duncan Investment Content, with years of experience producing content for global leaders in finance and retail.
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