By Alan Harvey
The vast majority of people will have had a plan for 2020. By the middle of March, however, most of these were likely jettisoned following the outbreak of Covid-19 and its impact on every aspect of day-to-day life.
Personal finance is no different and a new tax year is a good time to reassess your position and look at the implications for income and savings. The last couple of months have particularly underlined the importance of having an emergency reserve of cash - we normally advise clients to keep six months’ expenditure stowed away.
Finding savings is another important step for those in a position to do so. Change any utilities providers to cheaper options – whether it is your internet deal, utilities or phone bills. Finding the best internet and phone tariffs is now particularly important, as working from home can lead to greater use and, potentially, higher bills.
Also take the opportunity to run through monthly subscriptions – are there any products or services that you are no longer using? You may even want to take advantage of the opportunity to freeze sports TV packages or gym memberships.
Some of the day-to-day spending habits that were part of normality before the Covid-19 outbreak could be another source of savings. If, for example, you were spending £3 on a takeaway coffee every day during the morning commute, put this away instead.
As for larger outgoings, the Bank of England has cut the base interest rate to 0.1%, which should be passed on to homeowners. Check the mortgage rates available and what your current repayments are: even if there is a penalty, provided it is a relatively low one-off cost, it may be worth breaking your contract and taking a new fixed-term deal.
Whatever you are able to save, make sure you have a standing order set up that takes the money out of your current account at the start of every month and places it elsewhere. Another good way of ensuring savings discipline is to transfer money to accounts that place limitations on how many times they can be accessed every year.
Regardless of what you decide to do, take your time with big decisions and make sure your money has a degree of flexibility. Pension contributions are almost always a positive step, but remember the money is locked away. By contrast, funds placed in ISAs can always be withdrawn at short notice if required.
Nevertheless, returns are likely to be difficult to find in the short-term, so it is worth looking at what is available. The 1.4% interest rate on National Savings & Investments’ premium bonds places them among the most competitive on the market.
The low return environment will make it difficult to use up allowances. The 0.1% base rate will make it almost impossible to use your annual £1,000 interest income allowance. Likewise, dividends being axed may make it difficult to use the annual allowance of £2,000 another point – but couples should still consider splitting any stocks and shares portfolios between them.
However, low returns shouldn’t force you into riskier investments such as Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS). The impact of Covid-19 on the UK and global economies means that these schemes are even higher risk than they previously were – a lot of the businesses within them will not currently be operating. Before deciding whether they are right for you, speak to an adviser.
Finally, look at your protection policies. Do you have income protection and, if so, what does it cover? Some policies will only pay out if you are unable to work due to sickness, while others will also cover redundancy. Health insurance is also important, but pay careful attention to what is and what is not included in the policy.
The word ‘unprecedented’ has been used a great deal to describe the situation in which we now find ourselves. But do not let that make you feel helpless. From a personal finance perspective, there are plenty of steps to take and an adviser can provide a good sounding board – particularly if friends and family aren’t readily available. Arguably, it has never been more important to have a plan – even if it’s very different to a few months ago.
Alan Harvey is a chartered financial planner at Brewin Dolphin.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here