Four money lessons from the coronavirus lockdown

11 June 2020

5 minute read

The coronavirus crisis has taught many of us the importance of taking greater control of our money. Here, we consider the lessons to learn so you can build, or rebuild, your finances for the future.

Who's it for? All investors

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice.

What you’ll learn:

  • The importance of having an emergency fund to fall back on.
  • Why a cash cushion is the best place to start.
  • That a good mix of investments can help protect you from the worst shocks.

Weeks of being locked down at home has enabled us to learn new skills, whether it’s how to host a quiz online or make sourdough bread.

But it has also taught many of us the importance of taking greater control of our money.

The fact the coronavirus crisis came out of the blue has shaken the financial plans of many – even those well prepared for the unexpected.

Whether your income took a hit through job loss, being furloughed or you were forced to cash in investments when markets wobbled because you needed extra to see you through, there are lessons to learn about getting finances ship-shape again.

Even if you were sensible and had built a solid emergency fund to fall back on this might already be looking depleted and in need of repair as the crisis rumbles on.

You might still be in a job, earning the same and with a bank balance looking healthier than ever before. But it is wise not to be complacent. In an uncertain world, you don’t know that your income will stay the same forever.

On the plus side, being stranded at home means you’re splurging less on travel, going out and frivolous shopping.

The good news is plenty of people are putting this spare money to good use.

A recent survey by Barclays found that 18 to 29 years olds have used lockdown time to weigh up using excess cash to boost their savings towards future goals or for a rainy day. They have succeeded in salting away 3.8% more than usual into their savings accounts since lockdown began in late March.

A separate survey shows that all age groups with spare cash have added £546 on average to their savings balances.

Here’s how you can start building – or rebuilding – your finances for the future – by following these four lockdown money lessons:

Lesson 1: Spend more wisely

If you are still in work and earning your usual salary you should be feeling better off. Lockdown living has shown we can do without many of life’s luxuries from expensive gym membership to instant gratification shopping.

Look at it like a pay rise that if used wisely can provide a financial cushion against future financial shocks as well as help you achieve your dreams more quickly. Importantly, there are no guarantees in life, and that includes your income. With a recession looming – or even already here – widespread job losses are likely. So building an emergency fund while you can is all the more vital.

Lesson 2: Cash cushion

The rule of thumb for a rainy day fund is to build a pot of several months’ income. The lesson of the pandemic – with no swift end in sight – is that a bigger cushion might be better. You hope you won’t need it but will be grateful it’s there if you do.

This should be held in an easy access savings account. Consider setting up a direct debit from your current account every month – just after payday. That way it feels just like another household bill that must be met. Interest rates are shockingly low but the important thing is your money is safe – and available immediately if disaster strikes.

Being a forced seller of shares or funds in an emergency is not to be recommended. Those who sold up when markets were down by 30% in March because they needed the cash may have seen their longer-term savings goals abruptly blown off course. If you were in this camp, it could be time to start rebuilding the pot – with a focus on cash savings first.

Lesson 3: Keep habit going

Once lockdown is over, think about continuing your money-preserving and saving habits. Keep going until you have the necessary emergency cash fund.

Then consider longer-term goals. Perhaps you’re keen to buy a property, or are planning a family? Or maybe a comfortable retirement is the aim? If you’ve got time on your side – at least 5-10 years – then you might want your money to work a bit harder than leaving it in a savings account.

Investment is a next step on the risk ladder – and there are no guarantees it will do better than cash as you may even lose some or all of your money.

But by investing in shares and funds you are taking more risk, and in return have the opportunity to possibly see your money grow, over time.

You essentially do this by investing in the shares of companies. If these companies do well, then so should you. Equally, they can do badly or even go bust. You can reduce risk by spreading your money across several companies or via funds that invest in a large number of companies.

Lesson 4: Ensure your investment mix is resilient

If you were already invested in the markets when the coronavirus crisis hit, but had your money well diversified – spread across different assets and industry sectors – your ride may well have been less rocky during the stock market wobbles. This is a lesson in the merits of spreading your investments across different assets, including shares and bonds (IOUs issued to investors by governments and companies that are traded on the stock market). When one does badly, it is hoped others will make up for it with better performance.

For example, in the recent turmoil government bonds helped cushion the blow for those who held them alongside shares. And if you had tech shares or funds, these held up better than some other sectors.

You can choose from thousands of funds to help meet your investment goals and diversify the mix. If that’s too daunting, consider the Barclays Funds List. This is a selection of funds chosen by Barclays’ investment specialists for their solid reputations and robust investment approach.

Alternatively, there are Barclays Ready-made Investments. These diversify your holdings based on a level of risk you’re comfortable with. Bear in mind though that we don’t offer personal investment advice. If you’re not sure, seek it independently.

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