#VestpodSeries: Managing your money during Covid-19
Event synopsis, Thursday 15th October 2020 12:00noon (online) by Millie Ngai-Lenoir
Disclaimer: We are not certified financial advisers! The articles and information made available in this document and video are provided for information and educational purposes only and do not constitute financial advice.
Covid-19 has been a stressful period for us all, representing both a health-based emergency and a financial-based emergency. The outbreak of the Pandemic has left many of us feeling anxious about the uncertainty of our financial futures, given the potential impact on our everyday lives, jobs and income. As we look to the future horizon, it is crucial that we plan ahead and manage our money effectively. This is especially pertinent for women who have historically been excluded from the money conversation, with discussions surrounding their financial health being cordoned off and put into a separate box all together. Covid-19 has been no exception in this respect. Indeed, the Pandemic has had a disproportionate impact on women’s finances with research from the Institute for Fiscal Studies highlighting that women are 14% more likely to be furloughed than their male counterparts; 50% more likely to head towards retirement without any private pension savings, which has been further exacerbated by the disruption of the Pandemic; and have been overrepresented in the sectors that have been most impacted by lockdown.
Given this context, it is ever more crucial that women group together, talk about money and learn about how to re-organise their finances - enter Davinia Tomlinson, CEO of rainchq, an organisation with a mission to help women take control of their financial futures; Laura Whateley, an award-winning financial journalist and The Times’ consumer champion writing the agony aunt column; Emilie Bellet, CEO and founder of Vestpod, with Vestpod’s first online series, Managing Your Money During Covid.
These inspirational women are all pursuing the same mission: to educate women financially, advocating for all things personal finance. Here are some of their top tips to help you get a handle on your finances during these unprecedented times:
Plan, budget, and plan some more!
The more you are able to plan your finances ahead, the more time, energy (and money!) you will be able to save.
Budgeting is a fantastic way to get a quick snapshot of all the money you have coming in and going out. Setting up a budget means you’ll be:
Less likely to be in debt
Less likely to be caught by unexpected costs
More likely to improve your credit rating
Able to identify areas where you can make savings – see Emilie’s Blog post: 15 habits you might not know you have that waste your money
Laura Whateley
Laura’s top budgeting tip:
Begin by compiling your most recent bank statements, payslips, debit and credit card statements etc to get your budget started. This should help you to form a comprehensive picture of your outgoings.
After this step, it can be helpful to categorise your outgoings:
First level: costs that you cannot avoid (for example, rent and household bills)
Second level: costs that are essential but can be reduced or shifted (for example, transport and food costs)
Third level: costs that are not essential (for example, your snazzy gym membership)
From your third level category of outgoings, you can work out how to cut back on unnecessary expenses so that you can make those savings that will help you to meet your financial goals.
Laura conceptualises budgeting as a tool that enables you to treat yourself in the future as you would like to treat yourself now.
Davinia’s top budgeting tip:
There are some great free budgeting apps available and some retail banks have mobile banking budgeting tools that take information directly from your transactions to help you.
Alternatively, you can set up a budget using a spreadsheet or by just writing it all down on paper.
Save, save, save
In these uncertain times it can be important to establish emergency savings. Emergency savings act as a small cash buffer that you can fall back on in time of need.
It can be difficult to find the discipline to save. For this reason, it can be helpful to set a savings goal. In the case of emergency savings, it is recommended to accrue three months’ worth of expenses to be kept in an easy or instant access account.
Davinia Tomlinson
Davinia’s advice:
Don’t worry if you can’t save this amount straight away – it is simply a good target to aim for.
Laura’s tip:
Develop good savings habits early and begin by putting some money aside each and every month (this can be a very small amount).
Once you have set aside your emergency savings, you can consider further goals for your savings, such as putting money into your pension and making an investment goal based on your goals, attitude to risk and desired timeframe.
The importance of a pension
Latest research on the pension gap, the percentage difference in pension income for female pensioners compared to male pensioners, highlights the importance for normalising money conversations amongst women: The Office of National Statistics has shown that the pension gap increased in 2019 to 40.3%. The pension gap is particularly detrimental because it affects women when there is little they can do to improve their financial situation. This means that women aren’t saving nearly enough for the standard of living they hope for when they retire.
Advantages of saving into a pension
Pension contributions qualify for tax relief – this means that income that would have gone to the government in tax will go into your pension pot instead
‘Automatic enrolment’ – employers are required to enrol their workers into a workplace pension scheme, often employers will also match your pension contributions
A tax-free lump sum when you retire – you can usually take up to a quarter of your pension savings as a tax-free lump sum
Missing IRL events!
Ditch your debt
Debt can be a serious issue and, unfortunately, there are often no quick fixes. However, with some mental commitment and budget planning it is possible to get rid of it.
Begin by understanding what debts you have and write them down. Create a list of priority and non-priority debts:
Priority debts: rent arrears, mortgage arrears, council tax arrears, gas and electricity bills, unpaid income tax/national insurance
Non-priority debts: credit card or store card debts, overdrafts, personal loans
However, just because debt is non-priority doesn’t mean you should ignore repaying it.
If you have loans or owe money on credit cards, it can make economic sense to pay off that debt because it typically charges the highest rate of interest – see Emilie’s ‘avalanche method’ from her blog, How to ditch your debt – and stay out of it for good for further clarity
Ultimately, when trying to ditch your debt, it is important to be kind to yourself and celebrate even the smallest wins you make in clearing it.
Laura’s advice:
Definitely rethink building up your savings if you have accumulated debt. The interest you pay on debt, for example on a credit card loan, is typically much higher than those you would receive on your savings – the Bank of England base rate is currently 0.1%.
That said, for psychological reasons, some people enjoy the idea of having emergency savings.
But do beware of taking advantage of payment holidays unless you absolutely have to. A payment holiday is a feature offered by some loans and mortgages that allows borrowers to miss occasional monthly payments agreed in advance. They have been one of the economic support measures announced during the Covid-19 crisis, although they are still subject to certain terms and conditions. Discussions and articles surrounding payment holidays have alerted borrowers to the possibility that payment holidays may make some lenders reluctant to lend to them in the future because they will think they have encountered financial difficulty.
Investing for beginners
Wherever you are in your journey, making the most of your money and maximising your earnings should be a top priority. You should seek to maximise your returns in the context of the desired time horizon of your investment and your attitude to risk. For example, a younger person may have a higher risk appetite than someone who is older and has dependents.
This can be tricky when looking at saving in the context of how low interest rates are and trying to reconcile this when thinking how to maximise your money for your longer-term self.
The trade-off between accessibility to your emergency savings and maximising the interest you can receive on these savings is likely to be a consideration: locking your money into a bond with a maturity of more than a year, while being conducive to a higher return, will somewhat defeat the object of emergency fund accessibility.
The current interest rates on cash ISAs are also very low, with limited tax breaks on these savings being the key benefit associated with such an account. For this reason, those with lower risk tolerance might opt for dripping money into a regular savings account which could prove to be more lucrative.
It is also good to note that many current accounts have switching incentives from which you can gain access to a regular saver. For example, HSBC is currently offering £125 if you switch to them. While this may mean additional admin as you will have to manage multiple accounts, this is an easy way to get extra cash.
Investing for your medium-term self is also tricky given how turbulent markets are.
Emilie suggests that investing in your pension or a Stocks and Shares ISA may be two of the best ways to start investing because they are tax efficient, meaning any money you make on your investment is tax free. A stocks and shares ISA also has the added benefit of being more flexible since you can withdraw your money at any time.
What about overpaying on your mortgage when interest rates are low?
This question comes back to the idea of accessibility. The issue with overpaying on your mortgage is that you can’t get your money back easily. This could be great for your medium-term self, but it might harm your short-term liquidity, especially if it would mean sacrificing your emergency savings. If you have lots of spare cash, it might be better to consider getting a higher return from investing rather than on the savings you would make on your mortgage.
Davinia’s tip for investing:
When thinking about investing, the concept of diversification is key. Diversification is the best way to mitigate the risk you are exposing yourself to when investing. This means spreading your investments across different asset classes, such as equity and bonds, and investing across different sectors, such as technology and healthcare. First time investors should also take on as much risk as they can realistically afford because this is the only way to maximise return over the long run.
Emilie recommends investing in a global equity fund might be a good way to start investing because of this diversification point. In addition, it might be good to consider multi-asset funds and simultaneously investing in a couple of stocks that you like and have done your research on. For these purposes, the following companies could be a useful place to start investing:
Hargreaves Lansdown
A.J. Bell ‘You Invest’
Places like Moneybox can also be lucrative by allowing you to invest your spare change and earn higher interest on your savings.
Ethical investing:
As of late, there has been an explosion of people wanting to get involved in activism through ethical – or impact – investing.
Ethical investing refers to using your ethical principles as the key factor when making a selection of securities to invest in.
Ethical investing gives individuals the power to allocate capital on a stakeholder basis, towards companies whose mission and conduct aligns with their own personal values. For example, ethical investors may avoid ‘sin stocks’, which are stocks of companies involved in traditionally unethical activities, such as alcohol. Ethical investors may also consider the impact of the companies they invest in on the wider communities in which they operate and their impact on the environment.
As more people become ethically concerned about their investments, it is likely that companies which are conscious of their impact beyond shareholder value maximisation are likely to prevail in the long-term.
Laura on how to invest ethically:
Beware of ‘greenwashing’: although a company’s mission statement may mirror the values of ethical investors, the actual business practice of the company might be on the contrary. For example, this was seen in 2015 when Volkswagen’s emissions scandal came to light while in their mission statement they had claimed to be focused on improving their environmental impact.
It is therefore crucial to do your own research on the conduct of companies you invest in. There are many guides available, such as Share Action, which can help you to do your research on the environmental, social and governance (ESG) practices of the companies you are looking to invest in.
A good tip is to look at where your pension is invested. Companies such as PensionBee and Nest Pensions have specifically introduced ethical pension funds.
Financial advisers vs financial coaches
The main difference between financial advisers and financial coaches is that financial advisers are authorised by the Financial Conduct Authority (FCA) to recommend specific financial products to clients, whereas a financial coach is not as highly qualified and not authorised to recommend specific products.
A financial coach can:
Discuss your situation and financial goals
Build your financial plan for the medium term
Draw up your budget
Provide guidance, but not specific product recommendations, in areas that are regulated, for example whether it is sensible for you to invest
A financial adviser can:
Recommend specific products to clients
Discuss more complex situations than a financial coach, for example as you approach retirement, what is the best way to start withdrawing from your pension
Both financial advisers and financial coaches can be great in helping you meet your financial goals and holding you accountable to your budget.
How much will a financial adviser set me back?
For a financial adviser, you could spend anything from £500 for a basic financial plan to £5,000 if you are seeking something that is in depth and specific. Some financial advisers then charge a percentage of your returns in the form of fees which typically range from 1% to 5%. Make sure you’re aware of this and understand the fees!
When should I go to a financial advisor when I don’t have much money and an advisor feels just out of reach?
Davinia’s guidance is that you should go to a financial advisor once you have done your own research and financial planning but want more specialised guidance and feel that you have done as much as you can. It is important, in her view, to find a financial advisor with whom you have a rapport and a person who understands your needs when helping you to achieve your financial milestones. She recommends that it might be a good idea to attend a free consultation to discuss your needs before committing to the expense.
Retuning your mindset to build good money habits
In reality, financial well-being is determined by so much more than a person’s bank balance. Financial well-being is determined by a number of factors that forge your relationship with money. This can include:
How well you are able to keep on top of your financial obligations
How secure you feel about your financial future
Whether you have the freedom to make financial choices that allow you to enjoy life
Improving your financial well-being involves improving your relationship with money. This could mean learning how to keep to a simple budget; being able to improve your self-discipline; keeping to financial goals, such as saving.
It is important, Laura acknowledges, to ask for help if you need to. There are a number of charities out there which provide free and impartial money advice, such as The Money Advice Service and Money and Mental Health Policy Institute, as well as a number of tools through these charities and other organisations to offer financial well-being tips in the midst of Covid-19.
Davinia explains that it is important to adopt a positive mindset when thinking about money. Davinia urges you to think of yourself as your biggest asset, and, therefore, you should pitch yourself accordingly. One of the ways to put this into practice is through the art of negotiation: women in particular must be proactive in asking for salary raises and negotiating the terms of their contracts. This could also mean rewarding yourself for making small steps towards your ultimate financial goals and cutting yourself some slack when things don’t go to plan. These steps contribute to an ‘abundance’ rather than a ‘scarcity’ mindset. Adopting an abundance mindset is essentially training yourself to think about how you can be the energy you hope to attract. For example, if you believe that you are good with your money and use positive affirmations to remind yourself of this, it is likely to become a self-fulfilling prophecy leading you to manage your finances well. The alternative under a scarcity mindset would involve you believing that you are terrible with your money and you would reconfirm this belief through a cycle of self-doubt, over-calculating the cost of your expenditures and refusing to make beneficial purchases.
Regaining financial well-being, therefore, is about retuning your mindset to think about money from a more holistic perspective, celebrating your smallest wins and learning from your losses.
You can find Davinia and Laura here:
Davinia Tomlinson
Rainchq: https://www.rainchq.com/about-us/
Instagram: https://www.instagram.com/rainchq/
Laura Whateley
Twitter: https://twitter.com/lwhateley?lang=en
Laura’s book: https://www.amazon.co.uk/Money-Users-Guide-Laura-Whateley/dp/0008308314/
About the Author: Hi, my name is Millie and I am a fresh Economics and Management graduate from the University of Oxford. I am super excited to have a role in Emilie’s mission at Vestpod: to change the conversation surrounding money and empower women financially. I am also delighted to play at part in the diverse and inclusive community here at Vestpod as we seek to challenge the notions which have historically disenfranchised women in a financial context. I look forward to carrying these aspirations with me as I launch my full time career as an Investment Banking Analyst at J.P. Morgan from June 2021.