The coronavirus pandemic has had a significant impact on UK household finances. The Office for National Statistics (ONS) reports that around a third of workers saw their income fall in the financial year ending in April 2021.
The most affected were people on lower incomes, who are most likely to have been furloughed and least likely to have been able to work from home during the pandemic. If you are among those affected, you are probably itching to know when things will finally return to normal. Here’s everything you need to know.
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When will household finances return to pre-pandemic levels?
According to Sir Charlie Bean, former deputy governor of the Bank of England and a committee member of the Office for Budget Responsibility (OBR), UK household finances are not likely to return to pre-pandemic levels for another two years.
Speaking at a Treasury Committee hearing, Bean said, “We don’t have real household disposable income getting above pre-pandemic levels until the back end of 2023, and it’s growing at a pretty mediocre rate from then on.”
This forecast follows one by the Institute for Fiscal Studies (IFS) that shows the continuing wage squeeze that’s plagued the country since the 2008 financial crash is set to leave the average worker almost £13,000 a year worse off by the mid-2020s.
So, it seems households could be set for even tougher times going ahead. A slow-growth economy coupled with high inflation is likely to continue straining many families’ budgets.
With tax hikes including a 1.25% increase in National Insurance also on the way, things could get worse before they get better.
What can households do to boost their finances?
As we wait for things to improve, here are six moves you can make to protect your household finances.
1. Build a solid emergency fund
The pandemic has taught us that things can change quickly and that it’s important to be prepared. This is where an emergency fund comes in. A solid emergency fund ensures that you’ll have something to fall back on in the event of a large unexpected bill or a difficult situation such as job loss.
Experts recommend that you have at least three to six months’ worth of living expenses in your emergency fund. Understandably, this might seem like a lofty goal, especially if you are already living from paycheck to paycheck.
In this case, just try to save as much as you can. Even a small amount each month can build up to make a world of difference when you really need it.
2. Set yourself a budget
A budget can help you manage your money and find ways to save more of it. If you have never created a budget before and are unsure of how to go about it, there are budgeting apps out there to help you set one up that you can easily follow.
3. Cut your expenses and make lifestyle changes
If you are not in a financially secure position, you may want to examine your spending to see if there are some expenses that you can cut back or lifestyle changes you can make to save money.
That could mean cancelling streaming subscriptions or sports packages, cycling or walking to work a few times a week, cooking at home more instead of eating out, and so on.
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4. Boost your income through a side hustle
Once you’ve cut your spending, the next step is to figure out how to start generating some extra income. This can be easily achieved through a side hustle. It could be anything from driving for a ride-hailing service to doing some freelance work on the Internet.
There are many other cheap and affordable side hustles out there that you can try today. The ideal side hustle is one that is flexible enough for you to do it when you are available or have time, so assess your options carefully.
5. Check what benefits you qualify for and apply for them
Millions of Brits are currently missing out on thousands of pounds worth of state benefits every year that they do not know they can claim.
Ensure you are not part of this crowd by checking out what benefits you’re entitled to and applying for them. There are many online tools, such as entitledto.co.uk to help you find out what you could get.
6. Grow your savings faster by investing
Once you’ve set up a solid emergency fund, consider investing any extra money to keep it growing. The stock market can offer higher returns than leaving the money in a savings account. And if you invest through a stocks and shares ISA, you won’t have to pay tax on your returns.
Just remember that investing involves risk, and you may get out less than you put in.
