HOW TO SURVIVE VIRUS CASH CRISIS
It’s time to take a close look at your monthly spending and figure out how to get the best value
A COUPLE of weeks ago, I answered a question from a reader who was concerned about reductions in his income during the coronavirus crisis.
He asked about the best way to budget until his income goes back to normal. I promised to come back and look at the measures you can take if you start to work out your budget and then discover that your expenditure is greater than your income – on the basis that there’s nothing that can be done at this stage to increase your income, so you’ll need to look at cutting your expenditure, at least in the short term. The first thing you need to look at are the measures that have been introduced by the Government as part of attempts to help people cope with reduced incomes. There are a number of payment holidays available with things such as tax, VAT, mortgages, credit cards and personal loans. If you are going to consider one of these payment holidays, you need to remember that the payments are not cancelled and forgotten about – they will need to be made good at some point in the future. So if you are going to take a mortgage holiday for three months, or not pay your tax this July, then you need to think about what that means at the end of the holiday.
With tax, it is likely to mean that you will have a larger payment to make in January next year.
With your mortgage, it could either mean a larger payment for the rest of your mortgage term or an extension to the time that you will have to pay your loan for.
If you decide that a payment holiday is not for you, or if you work out that even after a payment holiday you need to make other savings, then you have to start to go through your regular expenditure with a fine tooth comb.
You will have to look at everything that you spend money on regularly and try to figure out where you can make savings.
Some people are telling me that they are already spending less while they are working from home, because they are not travelling to work and spending money when they get there, and that is a great start.
But the real work comes when you look in detail at the money that comes out of your bank account every month in direct debits, and you start to look at where you can make savings if you’re not spending efficiently.
And I don’t mean that you have to cut out the things you are already
paying for. What I mean instead is that you make sure that you’re getting good value for everything that you’re currently spending.
When was the last time you checked the cost of your car insurance, your house insurance or your life insurance, for example?
Many of us renew these insurances automatically every year without checking that we’re buying a competitive policy that covers the things we need it to cover at a price that is reasonable.
Have a look around the market before these policies come due for renewal and see if you can find a better deal and save yourself some money. Do the same with your gas and electricity.
Make sure you have a tariff that is competitive and that does what you need it to do. And one that is flexible enough to let you change it if you need to.
We waste millions each year paying too much in interest on credit cards, loans and mortgages when we could look around and find a better rate.
So take a bit of time and make sure that you do have the best deal in each of these areas.
And remember that with everything I’ve mentioned above, “best deal” isn’t necessarily the same as
“cheapest”. I prefer to use the term “value for money”.
You don’t want to be spending money that you don’t need to spend – that’s the whole point of the exercise – but you do need to make sure that you are paying for the things that you need to have.
So make sure that you don’t just go for the cheapest offer on the page if you’re online looking at insurance, for example. Make sure that you read the details of the policy that you are buying and that the cover suits you and gives you what you need.
And make sure that you are getting into a deal that you can get out of if your circumstances change.