On June 12th it was announced that the UK economy shrank by a record 20% during the April lockdown.
Whilst this probably did not come as a surprise to many (other than housekeeping, what did you buy in April?) it will not reduce the strain on many people’s finances. This could cause stress for a lot of people.
Consider this: the quality of your emotional life is the quality of your life. If you’re stressed, life is not good.
So how can financial stress be managed and changed?
Reducing financial stress will enable you to focus on other more important areas of your life and be able to relax in the knowledge that you have a financial plan to help cope with life’s surprises.
The first thing to do is create a budget.
This is the best tool you could use to get control of your finances and avoid stress. It will allow you to decide when and where you are going to spend your hard-earned income; it will ensure that your basic living expenses are provided for whilst still working towards your longer-term goals.
The early months of budgeting will be the most challenging but, once you develop the habit, you will reduce the amount of time you spend on it and consequently reduce the time you spend worrying about your money.
Secondly, accumulate an emergency fund.
This is money you can access very quickly to cover unexpected expenses and financial emergencies for example a leaking roof or car repairs. Knowing you have money tucked away for unforeseen circumstances in itself is a way of reducing financially induced stress.
My recommendation would be to have at least £1,000 in an emergency fund, then focus on shorter term debts, such as credit cards and personal loans, aiming to repay them as quickly as possible.
Once you have cleared these, aim to increase your emergency fund to around six months net salary. When you have achieved this, making overpayments on your mortgage is possibly the next thing to focus on.
I suspect, because of the Covid-19 crisis, more people will be giving more thought to larger emergency funds. How many people over the last three to four months would have felt a lot happier, and relaxed, having six months income in the bank to fall back on?
If you are struggling to make ends meet, accumulating an emergency fund may seem impossible, but start by putting a small amount away each month, £10 or even a jar of loose change (find a big jar!) Look in your garage or loft and consider what you will never use again; it is amazing what people will buy on eBay or Gumtree!
Where should you behold this emergency fund? This money needs to be able to be very accessible but unfortunately easy access bank accounts do not pay much interest. In my opinion, National Savings and Investments Premium Bonds are a great option:
If you still feel under financial pressure, it is important to seek help. The following website provides free and impartial money advice and is a good place to start:
moneyadviceservice.org.uk/en/articles/free-financial-advice-your-options
