People thinking more about their spending and financial priorities

The coronavirus (COVID-19) pandemic has lead to more people re-thinking how they spend and manage their money, with more than half (51%) now prioritising saving for an unexpected event or loss of income, research published suggests[1].

A third (32%) are setting aside money. This reflects Bank of England[2] estimates that more than £200 billion of savings have been built up during lockdown, but only 10% of these are expected to be spent over the next three years.

Having an emergency fund that you can easily call upon is one of the fundamentals of financial planning. As a rule of thumb it is normally recommended that households have between 3 to 6 months of essential spending readily accessible on deposit.

For those opting to save more money than before it is important to understand how inflation can adversely affect your savings and your long term goals.  With current rates of inflation, the value of your savings will fall, because prices are increasing around us at a level not seen for some time.

By utilising some of the excess cash and investing within asset backed investments through an Individual Savings Account (ISA) or a pension for example, you will give your savings the potential to grow in excess of inflation and provide a “real return”.

Spending and financial priorities
The findings show that while just under half (46%) of households are spending less generally on a day-to-day basis, the pandemic is clearly making people think more about their spending and financial priorities.

Nearly two-thirds (65%) said they are now very mindful about their money, with 38% giving more consideration to financial planning, and savings and investments. When asked what they would do with an unexpected £2k windfall, 40% said they’d save it compared to just over a quarter (26%) who said they’d spend it right away.

Battening down the hatches
Unsurprisingly, people’s savings are being offset in part by increases in grocery and household bills (for 37% and 36% respectively). And with more time at home for many, it seems we’re battening down the hatches and spending more on premium food and take-aways, while 39% are looking to invest in home improvements and DIY as we look to enhance our space.

Importance of our livelihoods
The good news for the advice sector is that nearly one in five (19%) are thinking more about seeking professional financial advice, a quarter of people are giving more thought to Wills and inheritance planning, and nearly one in five are thinking about protection products such as critical illness cover.

The past 19 months really have brought into sharp focus the importance of our livelihoods and finances, with many concerned about their health and financial security. But despite these tough times, it’s reassuring to see people taking stock and thinking positively about how they can bolster their situations, with one in five people considering professional financial advice.

Source data:
[1] 204 respondents to Zurich’s research panel made up of 88% target customers/12% customers May 2021.