It will have been a difficult year for many of your clients, with the coronavirus lockdown and furloughing of workers hitting employers and employees across many sectors.
While some have been able to save money during the pandemic, for others, the financial strain has been immense.
A recent report suggests that nearly a quarter of parents were forced to dip into their children’s savings as the lockdown hit.
The need for expert financial advice has rarely been clearer. The help we can provide your clients can begin with some simple budgeting techniques.
The Bank of Son and Daughter
The Bank of Mum and Dad is one of the UK’s biggest lenders, lending more than £6 billion last year.
With a long-term financial plan in place, parents can factor in the money they intend to give to their children – to help them onto the property ladder, or through university, for example – with the peace of mind that their own lifestyle need not be affected.
Covid-19 has meant that some parents have had to dip into their children’s savings. Borrowing from the so-called Bank of Son and Daughter is estimated at around £2.75 billion since 23 March.
The Telegraph reports, ‘According to polling of 2,000 parents by Direct Line Life Insurance, buying food was among the most common reasons for 23% of respondents saying they had dipped into their children’s savings.’
The report confirms that 27% of parents have had to stop regular contributions into savings or investments for their children. With many saving for something specific, this will impact their children in the future when they come to buy a first home or move into further education.
With coronavirus restrictions still in place, and workers being made redundant or on reduced pay as part of the government’s Job Support Scheme, the problem is far from over.
22% of those surveyed aren’t sure when or if they will be able to repay the borrowed amount. That could see the Bank of Son and Daughter lend a further £960 million between September and December.
Budgeting strategies to consider
While many have struggled, those in secure jobs and able to work from home have found that with the costs of commuting taken away, and chances to socialise limited, saving has been easier. The Financial Times reports that “In terms of cash saved and debts paid, the total net improvement to the UK consumers’ balance sheet has been £85 billion.”
The reasons behind your clients’ altered finances might be unprecedented, but the benefits of financial advice and careful budgeting remain the same. Whether your clients are economically stable or finding the autumn a financial struggle, here are some budgeting tips that can help all year round.
Breaking down monthly incomings and outgoings is a budgeting basic. Putting pots of money aside for different purposes can help your clients understand where their money is going and where they could cut back.
Under the 50/30/20 rule, your clients would allocate 50% of their income to essentials, such as their mortgage, monthly bills, and food. 30% is usually allocated for personal expenses, while the remaining 20% is put aside for the future, either in savings or investments.
For clients struggling with a lower income than usual, this might not be easy. Relocating some of the 30% for personal expenses into other areas could help.
The important thing is to think about income in these terms, even if the ratios that work for individual clients are different.
Paying your future self first means your clients focusing on their long-term goals.
Rather than waiting to see what they have left at the end of the month, they should be putting money aside first and budgeting with what they have left.
Whatever ratio works for an individual or household, saving something for the future – whether a pension, savings, or investments, is key.
Simple things like moving the extra monthly income received after a pay rise straight into savings mean that a client can increase their savings or pension contributions without having a chance to miss the extra money.
Your clients should have an emergency fund set aside for unforeseen financial shocks. Ideally, an emergency fund should total three to six months of their household living expenses and be held as cash, or at least be placed somewhere accessible quickly and easily so that it is there when they need it.
Your clients need to remember that if they don’t currently have this in place, they don’t need to build it all up at once, potentially leaving themselves short. Instead, they should pay whatever they can afford into their emergency fund, as part of a 50/30/20 ratio amended to better suit their needs.
With the fund in place, your clients have peace of mind that if accident, illness, or redundancy lead to a loss of household income, they’ll have enough to cover regular outgoings or help towards the unexpected cost without the need to accrue debt.
Get in touch
If your clients’ retirement plans could be affected by the changes due to come into force, please get in touch with us. Email email@example.com or call 0116 2407070.
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