The past year has seen lots of people across the UK tighten budgets due to furlough, redundancies or reduced working hours. As this has increased financial strain on millions of households, many have started considering their financial future in more detail, looking to ensure it is a secure as possible.
Since 2020, 11.4 million people in the UK (source: Statista) have been supported by the Coronavirus Job Retention Scheme (furlough). As of January 2021, around 5 million people were still being supported by the scheme (source GOV.UK). This has seen many salaries cut by 20%, as some employers are unable to make up the additional percentage not supported. For some, this reduced salary has been indicative of what a retirement fund may look like, which has prompted people to question whether their existing saving rates will provide a pension large enough to cover living costs upon retirement.
As those aged between 18 and 34 have been most affected by furlough over the past year, many young people are now looking to take control of their financial future.
What financial lessons can we learn from COVID-19?
- Keep your budget flexible
Over the past year, you may have noticed your outgoings changing from month to month. Your leisure spend was likely lower, commuting costs minimal and budget restraints may have impacted you at various points throughout the year.
The key lesson in this is that budgets need to be flexible, allowing you to adjust your spending and saving rates to keep pace with changing circumstances. It’s important to give yourself some leeway for overspending and underspending.
- Think about multiple income stream
Due to the financial pressures brought about in 2020, many households looked to increase their future financial security by creating multiple income streams through investment portfolios or by setting up a small business, for example.
- You could save more than you thought
Were you spending less on things you used to allocate a lot of your monthly income to throughout lockdown?
As you’ve spent more time at home, you may have seen a reduction in your outgoings. You might have even noticed you’re saving a significant amount, just by not purchasing meals during the working day.
Your daily meal deals could be worth £220,000 by the time you retire
Purchasing a coffee on the way into work or a meal deal at lunch is all too easy, so we often opt for this over making a coffee at home or preparing lunch the night before. However, the increase in homeworking over the past year has seen these purchases reduce significantly – and you may have noticed substantial savings.
If you purchase a meal deal and a coffee each working day, you’re likely spending around £25 per week. Over a month, that’s £100. But what else could you be spending that £100 on?
If you were to put that saving into a pension fund, it could be worth up to £125, as your pension provider will be able to claim tax relief on your pension contributions.
When saving into a pension, the government will give you a bonus in the form of tax relief, as a way of rewarding you for saving for your future. Tax relief is paid on your pension contributions at the highest rate of income tax you pay.
If you started to contribute £100 per month into your pension at the age of 25, it could be worth £220,256 (£76,173 in today’s terms) (source: Whateley Wealth Management) by the time your reach state retirement age at 68 years old. In addition to your existing retirement fund, that £220,256 can make an incredible difference to the security of your financial future.
Creating a secure financial future
- Develop a financial plan – think about your financial goals and break these down into short, medium and long-term objectives. You can then plan your savings and investments around achieving these goals.
- Diversify your investments – you can create multiple sources of income and minimise your financial risks by creating a diverse investment portfolio. This will contribute to protecting you against substantial loss if one investment were to perform badly. Diversification can’t entirely protect against losses, but it can help you to reach your long-term financial goals.
- Contribute to your pension – once you retire, your pension will likely be your main source of income. So it’s important to ensure you regularly contribute to your pension fund and understand what that investment may look like when you come to access the funds – even if that seems like a lifetime away.
For more information or advice on how you can create a secure financial future, visit http://bit.ly/whateleywm or call 0121 285 8528.
Alternatively, to see what your pension investment could look like once you retire, use our pension calculator: http://bit.ly/whateleywmpensioncalculator
Disclaimers:
The value of your investments can go down as well as up, so you could get back less than you invested.
The purpose of this article is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice.
