Lockdown has brought many changes to our lives, but how has it changed your spending and saving habits?
The foundation of all good money management is a clear monthly budget - understanding how much money is coming in each month, and how much is going out. In ‘normal times’ we can build a good sense of what our typical monthly budget looks like. But these are not normal times. The coronavirus lockdown has changed our way of life and with it our spending and saving too.
Many of us have seen our income change. At the time of writing, more than 8 million employees are in “furlough” 1 - staying at home and not working but remaining on their employer’s payroll.
The government has committed to paying 80% of the wages of furloughed workers until the end of July, up to a £2,500 per month cap, with no need for their employer to contribute. So many of these furloughed workers will have seen their incomes drop to 80% of their usual salary. This significant drop should be reflected in their monthly budget.
Meanwhile, lockdown has resulted in big changes in our spending habits.
We witnessed the spike in money being spent on toilet roll, but few of us are spending anything on restaurants, hotels or foreign holidays. For the millions of us working at home, the amount we’re spending on commuting to and from our normal places of work has also been cut.
Our lives may feel uncertain at this time, but a good monthly budget can at least give us some certainty over our finances. Here are five steps to setting a monthly budget.
Five ways to update your household budget
- Invest the time. Many of us rush to plan financial budgets but spending a bit of time on it could deliver rewards. Allocate a couple of hours to budgeting and prepare in advance by gathering the previous year’s pay slips, bank statements and credit card statements.
- Look back. Few of us know exactly how much we really spend each month, and on what. Go through your payslips to understand how much money is coming in, and then go through your bank and credit card statements to understand how much is going out, and on what.
- Look forward. Use the information you gathered in step two to estimate how much you may spend in the coming year, and in what areas. And remember that the coronavirus crisis will mean you are probably spending more in some areas and less in others. The government-backed Money Advice Service has a great online calculator to help you.
- Calculate the gap. This information will give you a better understanding of how much money is coming in, and how much money is set to go out, and where. If you’re spending more than you’re earning, you’ll need to make changes.
- Take control. Revise your budget. First, look at the top ten biggest areas of expenditure and see if there’s a way of saving money, perhaps by shopping around and switching suppliers. Second, look at where any savings are going – could that money work harder elsewhere – for example, perhaps swapping to a bank account that pays more interest, opening an ISA, or paying more into a pension? Third, keep track of your monthly spending, and revise your budget as you go along.