Five steps to improve your finances during a crisis
Most of us are thinking more about saving money during the ongoing cost-of-living crisis. While some people focus on locking down spending, statistics from the Financial Conduct Authority show that 12.9 million people in the UK have low financial resilience. That means one in four people could already be in financial difficulty, and may need help with money management. We’ve created this guide to suggest a few ways you may be able to improve your situation.
Reduce your spending where possible
Think carefully about high-cost borrowing
Check in on your savings
If you have a nest egg of savings put away, that is often the first place to consider when looking for cash to lessen any financial issues. Using savings can be the quickest and simplest way to help pay for emergency repairs, unexpected bills or changes in your income and if you can avoid taking out any further lending and avoid interest repayments, you’ll benefit in the long term.
However, this is not an option for everyone. Research undertaken by the Bank of England in 2022 has shown that 34 percent of adults have no savings, or less than £1,000, in a savings account. In general, it is recommended that everyone aims to have three months of expenses saved, but this can take some time to build up. With this in mind, why not take a look at our guide on simple ways to start saving now.
Reduce your spending where possible
With the cost of food, housing and energy soaring, cutting back on bills can be difficult. If it is not possible to reduce your everyday spending on bills by shopping around for better deals, consider what you spend on non-essential items.
There may be room to save money on items such as online streaming subscriptions for music and movies, eating in restaurants and days out. Consumer spending on culture and recreation remains a significant part of our overall spending. In fact, Statista figures show consumer spending in these areas rose by 14 per cent in 2021 following a severe drop due to the pandemic in 2020.
Put on hold anything you can live without for a while to see the impact it has on your bank balance - this may also help you to build up savings. There are many budgeting apps that can help you manage your money, from monitoring your spending to savings pots. Small, simple changes such as cutting back on coffee shop hot drinks or changing the brands you buy at the supermarket can also add up over time. Check out our expert guide to making your money stretch further for deeper insight into this topic. Of course, there may be situations where this isn’t enough to make a difference. If you are going through a health related issue or you’ve lost your job, you may need to undertake a deeper review of your financial situation.
Plan a budget
Facing up to the reality of your financial situation can be tough. But it is the best way to get on top of your money management and decide if there is an issue and if you need further help. Planning what you can afford whilst struggling with a reduced income or facing an emergency bill will provide you with a better idea of your current affordability.
The latest household spending figures from the Office of National Statistics show the average UK weekly spend was down during the Covid-19 lockdowns, from £570.60 per week to £481.50. That’s likely to have risen considerably after the pandemic, and as costs rise. But it does show that cutting back on social activity - as we were all forced to do during lockdown - saves money.
Making a budget is a great place to start reviewing your finances. We have created a handy online budget planner to make this easier, sign up to the MustCompare newsletter (at the bottom of the page) and receive this free, as well as great money saving tips and guides each month.
Emergency funding
If you are considering emergency funding, such as a short term loan, make sure to work out what you can afford to pay back first. It’s also important to fully understand the interest which will be charged on repayments and ensure you compare short term loans carefully before applying. Short term loans have high interest rates and should not be used if you are experiencing financial difficulty.
You may be eligible for other forms of financial help from the Government, depending on your circumstances.
These measures can include:
- Universal Credit, a payment to help with your living costs if you are on a low income or out of work
- Council Tax Support, which reduced your council tax bill if you are on a low income or claim benefits
- Winter Fuel Payment, a scheme which provides older people with funding to help pay their fuel bills
There are other payments available, depending on your situation. Check what financial help you are eligible for with this handy guide to benefits from Citizens Advice.
Think carefully about high-cost borrowing
Borrowing money from any lender needs to be carefully considered. That becomes ever more important with short term cash injections where the interest rate is generally higher. Short-term loans should be used for one off emergencies, not if you are struggling financially and need to cover everyday expenses. That’s because they cost more to repay, and this cost may put further strain on your finances.
In the right circumstances, short term loans and pay-day loans are helpful for consumers, but you need to be sure you can afford to pay them back. Our short term loans comparison tool can help you weigh up the pros and cons of high-cost borrowing.
It’s also worth noting that applying for a loan will have an impact on your credit score, to learn more about this see our handy guide on how your credit report can affect your loan application.
Share your saving successes
A problem shared is a problem halved, and one good way to budget is to do it with a friend or relative. Sharing your savings successes with each other will help spur you on to keep on top of your money management and stay in good financial health.
We’d love to hear how you got on with improving your finances, use the social media buttons below to share your top tips.