So here we are in January 2021 after a year like no other.
January 2020 now seems like a lifetime ago. This time last year we were catching up on what we did over the festive break whilst looking ahead to our plans for the year ahead. We may have been starting to think about travel plans and holidays. Perhaps 2020 was going to be the year you found that dream job or bought the home you’d been saving for.
Once we reached March, it was clear that what we had planned to spend our money on had changed dramatically. If there are any positives to come out of 2020 it’s that the pandemic has forced us to focus on our finances and become better savers. In part because we have been limited in what we’ve been able to do. There have been huge savings on social activities – staying in has become the new going out – and those that are able to work from home have saved the money they would have spent commuting. Although some people managed to travel abroad, a larger number cancelled their plans or chose to holiday in the UK.
The financial uncertainty of the pandemic has also made us reassess our savings for the future. We’ve witnessed well-known companies collapse over this period with many jobs lost or under threat. According to the Office for National Statistics (ONS) the unemployment rate – for July to September – was 4.8%. The ‘live for the moment’ attitude has been put on hold – ‘it might never happen’ has happened and could happen again. We need a backup, an emergency fund to draw on in a crisis. We are now more focused than ever on being prepared and ready for unforeseen circumstances. And this looks unlikely to change in the near future.
A survey conducted by the Bank of England showed that only 10% of households that had increased their savings had plans to spend the money they had saved.
“About 70% said they planned to continue to hold the savings in their bank accounts. Others planned to use their savings to pay off debts, invest, or top up their pensions”.
At the start of the pandemic, there was concern that pension contributions would go down in reaction to job losses and financial uncertainty. A survey commissioned by the People’s Pension confirmed that this has not been the case. The results showed that: “Only a very small percentage (3%) have stopped their pension contributions altogether during the past 7 months, while just 2% said that they’ve withdrawn money from their retirement savings”.
Research by PensionBee has shown that members have contributed more to their pension during lockdown and withdrawn less. Whilst the number of people making pension contributions went down slightly in April 2020, PensionBee found that the average monthly pension contribution had gone up by 43%, from April 2019 to April 2020.
“Where consumers are no longer spending money on everyday expenses such as commuting and eating out, they are redirecting their disposable income to their pensions”. Romi Savova, Chief Executive of PensionBee.
We often hear that the problem with pension savings is our inability to connect with our future selves. Recent events have been a wake-up call – the future is uncertain and the opportunity to plan and save needs to be grasped with both hands. People are actively looking at the best places to invest their savings and now more than ever need the support and tools to guide them.
As the English poet William Blake once said “Hindsight is a wonderful thing but foresight is better”. We may not be able to predict the future but long-term planning and saving for a rainy day is more important than ever. Let’s continue that one positive from 2020, and keep on improving our savings habits.
2021 Budget tips:
Start your budget from zero each month
Make sure every pound is accounted for – even if you’re allocating it to savings.
What’s going out each month
What regular payments do you make? Rent/mortgage, food, water etc.
Manage your debt
Put together a plan for paying back debt, such as credit card bills. Look at slowly increasing payments over time.
Set aside a buffer/emergency fund
Prepare for unexpected expenses. Setting aside a bit extra each month will stop you from taking money out of other savings.
Make use of tools
The digital world is at hand. There are a number of apps or online savings tools to help you to allocate your money.
Don’t forget your pension
Don’t cut back on your pension contributions if you can help it – remember it’s part of your savings.