The ongoing pandemic is more than a global health issue; it’s an economic crisis too. Already, the Office for Budget Responsibility estimates that more than two million people will lose their jobs by June. Meanwhile, others will be pushed to take forced leaves, accept pay cuts, or be furloughed. As more businesses are forced to cut down their operations in lieu of isolation measures, the BBC reports that the UK economy is also predicted to shrink by 6.5% this year. This will have to be the economy’s lowest point since the Great Depression of the 1930s.
With all these factors in mind, the importance of financial literacy and money management has never been more evident. The added knowledge can help you better allocate your money, for instance, or keep your expenses in check. To help you with your financial literacy during this trying time we have provided a guide to help you understand government measures, plan your budget, and invest during the pandemic. .
1. Understand government measures
In order to better plan and organise your finances, you need to know where you are starting from, and this is done through understanding the government’s measures. For instance, the government has offered different measures depending on whether you are employed or self-employed. For those who are employed, Chancellor Rishi Sunak announced that the state would pay grants to certain workers, covering up to 80% of an employee’s salary (up to £2,500 per month), provided that they’re still on company payroll with the scheme to continue until October. For those on the scheme, this gives them a timeframe to prepare for the future when the offer ends, as they may have to take a pay cut or be out of employment. On the other hand, self-employed workers can apply for a grant worth 80% of their average monthly profits, defer self-assessment payments until January 2021, and “claim universal credit at a rate equivalent to statutory sick pay”. Understanding your options and when they end will help improve your financial literacy during this pandemic and ensure you are not caught flat-footed when the schemes end.
2. Put together a clear budget
Now you understand the government’s measures and where you fit in you can draw up a budget. With limited cash flow, having a detailed budget can make or break your financial stability. The Independent’s budgeting tips while furloughed outlines a couple of steps you can follow. First, list all the outgoing costs you have. This includes monthly bills like utility, rent, and shopping, as well as any debts, loans, and insurance you’re actively paying for. Then, compare this amount with how much you earn every month. This will show you how much money you have to spare, how much money you can put into your savings, and where you need to cut back to afford your expenses. For the latter, you can look into cancelling your subscriptions, for instance, or transferring your high-interest debts onto a cheaper card. Money is easier to manage if you can see how your cash is flowing more clearly.
3. Invest long-term
While it may seem counterintuitive now is also the best time to think about long-term financial stability. If you have extra funds you can look into taking advantage of current market positions. In this case we recommend exploring the stock and forex markets. Entrepreneur Gemma Godfrey informs that share prices are at an all-time low right now, making it a good time to invest your money. For those who have little-to-no experience in the stock market, you can take formal courses from educational platforms like Udemy, or take advantage of free webinars offered by financial institutions like Franklin Templeton Investments.
Another method you can explore is forex trading. Currency is greatly affected by the state of a country’s economy. And as mentioned, the economy is low, making now the perfect time to buy and hold on to assets. Like every aspect of finance, the key to succeeding at forex is through financial literacy, which you can learn through using online resources. Case in point, a guide to what a pip is in forex by FXCM explains how it is a measurement of a price change for a currency pair using decimal points. Once you understand this concept you will be able to better analyse currency and market movements. These online guides can help you learn at home by yourself and start trading immediately. If you want a more detailed understanding, you can also look into enrolling in courses offered by forex specialised platforms like FX Academy and Baby Pips.
If you’re wary about entering the investment market alone, there are numerous apps like Mint and Toshl Finance that can help you throughout the process, too. You can also consult with a financial expert or advisor.
By becoming more financially literate, you can have the confidence to make informed decisions, such as when to ask for deferrals or preparing an emergency fund. Take advantage of every resource available and learn what you can in order to be financially literate during this pandemic.