According to figures from the Bank of England, in April, households repaid £7.4 billion of consumer credit. This is the largest net repayment since their records began. Not only that, but they also increased their deposits in banks and building societies. This suggests that, for some people at least, the lockdown has actually saved them money.
Saving money in lockdown
There has been a lot of publicity about how some people in the UK have had their finances decimated as a result of the lockdown. For others, however, the lockdown has been, financially at least, a non-issue thanks to the furlough scheme.
In fact, for some people, it may even have been a way to earn extra money. Furloughed workers are banned from working at their main job, but they are allowed to take second jobs and/or to freelance. It’s hard to say if there is a connection between this and the record debt repayments. It is, however, easy to see how furloughed workers with debts (or just a lack of savings) might see this as a great opportunity to deal with the issue.
Furlough means income from work without work-related expenses
Work brings in an income, but, for most people it also means expenses. Unless you actually work from home, you need to get yourself to work and, as a rule of thumb, the further you need to travel, the more expensive it becomes.
Then there’s the issue of food and drink. Some people may be organized enough to pack meals but even if they are, not everyone wants cold food and drinks and lunchtime and not everyone can get easy access to cooking facilities. Even though many businesses will have, at least, kitchenettes, these can be in high demand, especially at mealtimes.
Depending on the nature of a person’s work, there may be other, incidental, expenses. For example, in some companies, there may be an obligation, or at least an expectation, that employees will meet certain grooming standards, which may entail further spending.
Managing income saved in lockdown
If you’re in the fortunate position of having been able to save money in lockdown, you may be wondering what to do with it. Fundamentally, there are really only four actions you can take with money. You can pay down debt, you can save it, you can invest it or you can spend it.
If you have debt, then it can make a lot of sense to pay it down as quickly as possible, especially when interest rates are low. There is, however, a bit of nuance here. If you have no cash savings at all, then it can make sense to build up a cash cushion in case you have an unexpected need for money. That way you can reduce the chances of being forced to make difficult decisions if you find you can’t take out extra finance.
If you don’t have debt, or you are happy you can manage the repayments, then you may want to look at increasing your savings and/or investments. Keeping cash savings limits your risk (although you may want to familiarize yourself with the rules of the FSCS protection scheme) but it also reduces your potential for reward. The reverse is true of investment.
Last but not least, sometimes you can spend money to save money, or, at least, to save yourself the stress of worrying about money. Now might be a very good time to review your insurance coverage and make certain that it is appropriate for your present situation and going forward into the immediate future. In fact, now could be a very good time to get this double-checked by a financial adviser to make sure that you are making sound decisions based on current and accurate information.