7 ways to rethink your finances if you’re in a rut

While many people may have struggled financially during the pandemic, for others this bubbled-up period has been one of unplanned saving.

Lower transport costs, eating out less, cheaper childcare costs and no holidays abroad have left some bank balances in a healthier place than ever before. 

In 2020, the average household saved an impressive £7,100, and Brits are sitting on a whopping £192 billion worth of lockdown savings built up since the first restrictions were imposed on 23 March 2020.

In fact, financial experts have predicted a £50 billion spending spree in the wake of Covid lockdown restrictions being eased. 

But, of course, that’s not the whole story. Many people are experiencing major financial hardship due to unemployment and furlough, with one in four UK adults at financial risk, according to the Financial Conduct Authority.

Whatever your financial situation, we’re all inclined to press the turbo button on spending now that lockdown is easing, but a reckless approach to your finances is a dangerous one, says Diane Watson, financial planning expert and founder of She Can Prosper. “Mindless spending can see people ending up needlessly in debt – and often for a long time.”

Accountant and tax adviser Faye Watts, founding partner of London accountancy firm FUSE Accountants, adds: “If you’ve managed to save a healthy sum during lockdown, think about the freedom this gives you, possibly for the first time in your life. Do you really want to fritter it away?”

Here are seven ways to rethink your finances if you’re feeling a little out of control…

Know your numbers

“Most people don’t know how much they spend every month, but it will help you understand where the wastage is so you can change your habits and get a sense of control,” says Diane.

“Get all your financial details together in one place, either spread over the kitchen table or using an online app, such as Yolt, to collate your expenditure digitally and see your bank and credit card accounts in one place. Work out the value of debts and any savings accounts, no matter how big or small,” advises Faye. 

Make some easy everyday wins

Review your bank and credit cards to work out how much you are spending. Get really clear on your day-to-day living costs as well as your irregular expenses. “Look back over three months so you get a realistic overview,” says Faye.

“Where could you slash your costs? Could you use this as an opportunity to lower any of your outgoings, like your utilities? Once you know this, it could give you the drive to take action and find a better deal.”

Get real about credit

If you’re spending beyond your means and not paying off your credit card each month, it’s time to stop.

“If you can’t pay it off when you next get paid, don’t buy it. It’s that simple,” advises Diane. The interest on many credit cards is huge and you can needlessly end up with uncontrollable debts further down the line, as well as impacting on your credit rating.

“People tend to pay off the minimum amount each month, so they’re not actually repaying the debt. But it has to be paid off eventually,” she adds.

Do a cull

Do you really need all those subscriptions? Only keep the ones that are good value – and that you actually use.

“Subscription services like Netflix, Spotify and Amazon Prime make huge amounts of money from some customers that hardly ever use their services. This is literally throwing money away on things that have outgrown their use or that you’d forgotten about,” explains Diane. Netflix had more than 200 million paying subscribers by the end of 2020.

Go through your statements and think about how much you’re paying for these services and whether you’re actually using them enough to warrant the expense. 

Have mindful treats

Once lockdown has lifted, two in five people plan to increase their spending to above pre-pandemic levels, according to NerdWallet.

If you have a tendency to splurge spontaneously, this can soon turn into uncontrolled spending and messy finances. “We justify this by saying we’re treating ourselves and we deserve it, as if that makes unplanned expenditure somehow justifiable,” says Diane.

“Be conscious of the language you use around money.” If you’re about to make a spontaneous purchase, ask yourself if you really need it.

“Notice when you’re spending mindlessly or splashing out to cheer yourself up,” says Diane.

And ask yourself: could you manage on less now that Covid and lockdown has got you used to being less ‘spendy’ and living in a more meaningful way?

Kick the red habit

If you’ve always been a bit chaotic about your finances and never really worried about whether or not you’re in credit, lucky you. But once you’re in the red, even if your overdraft is arranged, you still have to pay for it.

“Ultimately, it’s you that you’re taking the money from and eventually you’re going to have to pay it back. So once you’ve got yourself in the black, make it your mission to stay there,c explains Diane.

“Know what debts you have and look at the rates of interest and fees you are paying. Look at ways you can consolidate or reduce interest being paid, making use of interest-free credit cards or reviewing your terms,” says Faye.

Stop living for today

It’s hard to put money aside, but if you can, put a little each month. “Some people give little thought to how they’re going to live in the future. Squirrelling some money away will provide a buffer if you lose your income through illness or redundancy, giving you peace of mind,” says Diane.

“And take advantage of company pensions, which is basically free money from your employer. Incredibly, many people just don’t bother, but it’s well worth it. Yes, you have to put your own contribution in, but that pot will soon grow and make a huge difference to you later, when you’re no longer earning.”

You can plan your projected future finances by doing cash-flow modelling with the help of a financial advisor. 

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