Coronavirus has affected many aspects of our lives and research shows that savings are one area that may have been affected. Whether you’ve had to dip into savings or have been able to put away, it’s important to look at your financial plan to ensure you’re getting the most out of your money.
According to research from Aegon, six in ten peoples’ savings have been affected by the pandemic in some way. These people are split into two distinct categories:
1. 31% of savers reported they have increased savings during lockdown as other costs, such as commuting to work and entertainment were cut. On average these savers increased the amount they put away by £197 per month.
2. In contrast, 28% of savers said they’d been forced to reduce the amount they were saving each month or stop saving altogether. On average, savings were decreased by £159 per month.
Steven Cameron, Pensions Director at Aegon, said: “While coronavirus is first and foremost a health crisis, it is having a big impact on the nation’s wealth. Our consumer research shows six in ten of the population have changed their savings levels since the start of the crisis with a stark divide between those who have been able to save more because their expenditure in lockdown has reduced and those who have had to cut back or stop regular savings. If this divide in savings patterns continues for any length of time, it will have a big impact on the future financial security of different groups.”
Unsurprisingly, employment status had a big impact on whether savings were cut or boosted. Those needing to cut back are more likely to have been furloughed, potentially meaning taking home just 80% of their normal salary, or self-employed as income may also have been affected. While support is available for self-employed workers, they’ve typically had to wait longer for this to come through.
On the other hand, those that have remained working throughout the lockdown, either as keyworkers or from home, are likely to have maintained their income while seeing other outgoings decrease.
If your saving habits have changed, it’s important to review this in line with your financial plan. What steps you should take will depend on which of the categories you fall into.
Saving more during the pandemic
If you’ve been in a position to save more during lockdown, it’s worth looking at where your savings are going and if it’s the most efficient place.
Interest rates are low at the moment, which can mean your savings are losing value in real terms over the long term. If you already have an emergency fund established, ideally with around three months’ worth of outgoings in a readily accessible account, you should look at the alternatives. This may include a fixed-term savings account, where your money is locked away for a defined period, or investing if appropriate for your goals.
When looking at where to place your increased savings, it’s important to keep your goals and overall financial plan in mind. While investing can be a way to increase value over the long term, it’s not appropriate if you’ve decided to save for a holiday next year, for example.
Saving less or using savings during the pandemic
If your saving habits have been negatively affected by coronavirus, it’s important to understand the impact.
You may have been forced to dip into your emergency fund, for instance, depleting your usual safety net. First, you shouldn’t feel guilty about doing this, after all, you’ve put that money aside to help you weather unexpected events. However, you should keep track of what is being used and how you’ll replenish savings once you’re in a financial position to do so.
Where your regular savings have been reduced or halted, the long-term impact is something that should be considered. In many cases, a few months of lower saving contributions are unlikely to have a huge impact on financial security in the long term. But it’s worth assessing if goals are still within reach to provide peace of mind. You may find that increasing savings once you’re able to or delaying plans for a while is necessary.
While lockdown restrictions have eased, some workers are finding their routine will remain disrupted in some way in the coming months. It’s important to review your financial plan in light of personal changes if needed, it can help keep you on the right track.
It’s not just savings that Covid-19 may have affected in terms of finances either. The pandemic caused short-term volatility in stock markets which may have impacted investment portfolios and pensions, for example. If you have any questions about your financial plan and goals, please get in touch.
Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.