Coronavirus money worries – how to protect yourself by changing your attitude to saving

When it comes to financial planning, there’s an elephant in the room. Something that’s got everyone looking for ways to cut household spending, something that’s changing attitudes to finance and saving. Something that’s at the heart of all our money worries.


COVID-19 – and the response to it from governments around the world – has changed everything. The way we socialise (goodbye pub crawls, hello Zoom quizzes), the way we work (today’s commute is to the kitchen table) and most importantly the way we think about money.

That’s because we’re all worried that there’s not going to be enough of it. Maybe you’ve been furloughed on a reduced wage, maybe contract work is drying up, or maybe you’ve been one of the people unfortunate enough to have no job to go back to. Whatever your current circumstances, the chances are that you’re operating on a reduced budget.

You’re not alone. The pandemic has everyone looking to save by reducing their spending, building up an emergency fund, and changing the way we think about finances.

For good.

In this guide, we’ll explain how coronavirus has changed the way we’re all spending money. We’ll look at why more and more people are changing their attitudes toward saving and preparing emergency funds. And we’ll show you how to adjust your financial outlook to the new normal.

Who our coronavirus saving and budgeting guide is for

  • If you’re worried about the impact of Covid-19 on your finances
  • If you’d like to know how to make household savings with a simple budget 
  • If you’re considering creating an emergency fund to safeguard your future

“Stay home. Save money. Protect your finances.”

Everything changed when the Prime Minister appeared on television with a seven-word instruction:

Stay home. Save lives. Protect the NHS.”

Instantly, household incomes across the UK dropped. And strangely, even with people who were working from home with no change to their income, so did spending. 

Some of it was easy to explain – there’s no need to buy petrol when you’re not driving anywhere, and you can’t splash out on a night in the pub when they’re all shut. 

But can a 29% drop in all household spending really be explained by us not buying bus passes, cinema tickets and restaurant meals?

How household spending changed during lockdown

Spending increases

Tea and coffee
TV subscriptions
Energy bills

Total: 6% increase

Spending decreases

Eating out

Total: 35% decrease

The results: The average household saw a 29% net drop in spending, equivalent to £171 per week.

While the initial lockdown period saw people spend more on in-home entertainment, small treats such as chocolates, and alcohol (which saw a £1.9bn sales increase in the 17 weeks to July 2020), the overall drop in household spend shows that a large proportion of spending in the UK goes on optional purchases.

When you look at what you’ve spent more and less on during lockdown, you’ll see that the only bills that really change are energy and heating use (which rise because you’re at home more), and fuel and commuting costs (which fall because again you’re at home).

All of the other changes are in purchases which you’re not obliged to make. And that means that many people are looking at how much they used to spend on a night out and deciding that perhaps it’d be put to better use investing or saving to create an emergency fund.

Because Coronavirus hasn’t just changed the way we spend our money. It’s changed the way we think about the money we earn and spend too.

Coronavirus is changing the way we think about finance

I have realised the need to have some savings behind me, as you never know what is going to happen.”

When circumstances change, as they have during the Covid-19 pandemic, behaviour changes too. Especially in situations like the lockdown, which are designed to force us to change the way we behave.

Attitudes and the way we think usually lag behind and take longer to change. 

At least, that’s usually how it works.

But a report from the research institute BritainThinks has shown that we’ve changed our attitudes to saving, spending and finances pretty quickly as a result of the Coronavirus.

We’ve had to. Because the financial situation in Britain needs us to think a little differently.

The financial impact of coronavirus*

  • 36% – Amount of people who report their income decreasing
  • 1.2m – Number of requests for repayment holidays
  • 1 in 6 – Number of mortgages in the UK subject to deferred payments
  • 8% – Average drop in household income during lockdown
  • 15% – Drop in income for the poorest households

When – almost overnight – over a third of us saw our income drop, and millions of us were forced to ask for deferrals on loans and mortgages, it’s no wonder we suddenly all decided we needed to take control of our finances.

And for many people, the best way of taking control was to create a safety net in the form of an emergency fund to dip into when times get tough.

In times of global emergency, you need an emergency fund

During lockdown, households saved £3 from every £10 of their disposable income – a record high. 

Part of this is due to opportunity, with households who’d otherwise spend their money on holidays and nights out deciding to put cash aside for the return to normality, but research shows that we’re all now thinking seriously about creating a cushion to protect ourselves from future Coronavirus-related turmoil.

Nearly half of people (46%) are very or fairly concerned about their income over the next 12 months, and have quickly realised that money saved today will help them weather any coming financial storm. 

And if you’re worrying about what the future holds, you’ve probably started to give some thought to an emergency fund.

But before you start putting aside that emergency money, you need to update your household budget to free up extra cash for savings and investments.

Five easy ways to update your budget

Five easy ways to update your budget

1. Set some time aside to plan. Don’t rush this, take an hour or two to gather pay slips, bank statements and other information to make your budget accurate.

2. Learn how you spend. Check over your balances and statements to see how much comes in each month, and where it goes out.

3. Look to the future. With that information, try and estimate what your spending will look like for the next 12 months. Remember that with potential lockdowns, your spending on socialising and travel will stay low, while bills and in-home entertainment might rise.

4. Mind the gap! Check your potential income against your predicted outcome. If you’re bringing in less than you’re due to payout, you’ll need to make changes to your spending habits.

5. Take control. Find ways to reduce household spending. Maybe it’s something obvious, like quitting smoking. Or maybe there are savings to be made by switching suppliers. Reduce spending to free up as much money for your emergency fund as possible.

With your budget in order, it’s time to start on your emergency fund.

How to set up an emergency fund

Your emergency fund is your buffer to protect you from any Coronavirus related money worries, or from any changes in your circumstances. It’ll help you avoid costly loans and debt, and give you extra peace of mind.

How much should you save?

If you have enough money to cover between three and six months of living expenses, you’ll have a cushion to see you through any short term issues. But don’t think you need to have half a year’s budget covered for your fund to be worthwhile. Even £500 to £1,000 in savings can get you out of financial trouble in an emergency.

Where should you put your emergency fund?

This depends on your financial circumstances. You’ll want an account that you can access – it’s no use your emergency fund being locked in a fixed-term investment account that you can’t withdraw from.

Ideally, you need to keep it separate from your current account, in a specific savings account where it can potentially gain some interest. 

How do I grow my emergency fund?

By adding to it. The first step is working out how much you want to save. Six months’ expenses according to your budget is a good initial goal. Then set a monthly goal. Our budgeting spreadsheet will help you get started.

Once you know how much you’re saving per month to meet this goal, there are ways to grow it quickly:

  1. Set up a monthly payment: If you can budget for a set amount each month, set up an automatic transfer to your savings account.
  2. Keep the change: Keep those £1 and £2 coins in a jar, and then deposit them once your jar is full.
  3. Round up your purchases: Spending £17 on a subscription? Budget for £20, and suddenly that’s an extra £3 for your savings. It soon adds up.

When can I dip into my fund?

In emergencies. This shouldn’t be your “I fancy a new pair of trainers but I can’t really fit them in my budget” month. It should be your “I need to pay this month’s rent and I’m short” fund.

Be sensible, and be honest. If it’s not an emergency, it shouldn’t come out of the emergency fund.

But what if I really can’t build an emergency fund right now?

Unfortunately, for those of us that have been hit the hardest by the pandemic, it’s hard enough to keep your head above water – let alone start putting together an emergency fund.

If you’re worried about cash flow, there are a few steps you can take. Take a look at your outgoings to see if there are any direct debits or subscriptions that can be stopped, to free up some cash. Talk to suppliers to see if you can negotiate tariffs or pause payments, or even look for cheaper suppliers. If you know you’ll struggle to make payments, you could try reaching out to creditors to see if you can come to an arrangement – rent, mortgage, gas, electricity, water and council tax are the most important payments, so these will need to be prioritised.

The Money Advice Service offers free and impartial advice, so if you’re struggling to keep on top of your finances, don’t hesitate to get in touch.

When it comes to attitudes to finance, Coronavirus is making “The new normal” just plain normal

Coronavirus, unfortunately, might be with us for a while. That means that the recent changes to your spending patterns could well be here to stay too. The way you think about money, the way you handle your household spending, and your attitudes to spending need to change for the long term, not just for the short term.

But if you think about what you spend, if you start saving for your emergency fund today and keep looking at ways to cut your household spending, then your Coronavirus money worries could be a thing of the past.

Even if the virus itself remains part of the everyday present.

How Claro can help

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