Working from home during lockdown and seeing your spending decrease? It’s not your imagination. With commutes scrapped, season tickets gathering dust and regular activities paused, here’s how to take stock and cancel what you don’t need, building your unexpected coronavirus savings pot.
Saving money during lockdown – can you grow your pot?
From a mortgage holiday and switching out a big spend – like your car insurance, to everyday expenses like your food shopping and gym membership, does it make sense to press pause, during the current coronavirus crisis?
Being at home can bring its own expenses (for example more day-to-day groceries with hungry mouths to feed), but by-and-large, if you’re still earning without commuting or leaving the house, you’ve probably seen certain costs fall away.
Whether the extra money is earmarked for a holiday fund, moving house, rainy day savings or topping up your pension pot, our top six tips below will help you make the most of your spending break, checking every nook and cranny of your normal outgoings for ways to set money aside.
1, Should you get a mortgage holiday?
First things first, it’s important to remember that you’ll probably pay more interest on your mortgage, in the long term, if you take a mortgage holiday. This is because interest will keep building up on the full amount you owe, even if you’re not making payments for a short time.
The guidance is that if you aren’t worried about being able to pay your mortgage, you should carry on as normal. But if you’re concerned and think a mortgage holiday could help you save cash as a buffer during the crisis, it might work for you.
Recent data from UK Finance shows that between 25 March and 8 April, over 60,000 payment holidays were processed every day. And since applications formally opened on 17 March, over 1.2 million households have made use of the policy.
Those are big numbers, but many people are yet to pause their mortgage repayments, if they plan to at all. Is it a good way of putting cash aside, and how would you go about it if so?
What is a ‘coronavirus mortgage holiday’?
If your application is successful, a normal mortgage holiday will pause your monthly repayments for an agreed period. The coronavirus outbreak and resulting disruption to work and daily life has made paying a mortgage difficult for millions of homeowners, and the government officially announced a three-month mortgage holiday as part of its covid-19 package on 17 March.
A few banks had already built their own versions of this, but the announcement means all lenders will have to honour the three-month policy.
Am I eligible for the coronavirus mortgage holiday?
If you have a mortgage and all your payments before the crisis are up-to-date, you’ll probably qualify. For homeowners already in arrears, the best plan is to speak to your mortgage lender, as options may still be available.
Will a mortgage holiday affect my credit score?
Major credit reference agencies Experian, Equifax and TransUnion have promised to protect credit scores if you do go for a mortgage holiday, using a special ‘emergency payment freeze’ measure. This will be in place across the three month holiday period.
Don’t just cancel your regular direct debit, if you need to take a break from mortgage payments.
Make sure you’ve completed a successful application with your lender, and they’ll pause the payments for you. If you just cancel the direct debit, this will be treated as a missed payment, instead of a payment holiday.
2, Save on your car insurance
Lots of people will still want to use their car, especially if they’re living in remote locations and need to drive a few miles or more for essential food, supplies and medical requirements.
But if you only use the car for pre-coronavirus trips, non-essential shopping and a scrapped commute, you might not need to keep paying the full price for insurance and tax.
Off-roading your car
Like with a mortgage payment holiday (see above), you can’t just let your car insurance policy lapse. If your vehicle is legally ‘on the road’, you must have insurance for it, by law.
Your first job, if you’ve decided to off-road your car during the crisis, is to check in with your insurer and see how they handle policies for cars taken off the road. You can then register it with a Statutory Off Road Notification (SORN) from the Driver and Vehicle Licensing Agency (DVLA).
If you’ve done this and have the legal confirmation to prove it, you won’t need to insure it, pay road tax or have a valid MOT (although all of these will need to be in place when you drive it again, check the RAC’s guidance around driving your car to its MOT test centre whilst off-roaded). Most insurers will also refund any full months of unused tax you’ve already paid for, and cancel your future policy payments.
Remember, if it’s off-road, your car will need to be kept in a garage, your driveway, or other private land. And if you do decide to stop your insurance altogether, you won’t be covered against fire or theft (some insurers will help you work out a limited policy, keeping this cover active).
Switching to a pay-by-mile policy
Can’t off-road the car but still want to save? For people clocking up fewer miles and only making essential trips in their car, looking into a pay-by-mile insurance policy may help you make a big saving during covid-19.
It’s not just the fuel you’re using (or not not using, in this case). Insurance is notoriously expensive, and with millions of us driving less, it seems much thriftier (and fairer) to be paying less on your premium.
A pay-by-mile policy like one available from the challenger insurer brand By Miles uses GPS technology to monitor your car, charge you a fixed amount to cover your parking, plus any miles you drive too. So if you run into a week where you don’t use your car, you’ll pay for insurance whilst it’s parked, and nothing else.
3, Round up your day-to-day spends
The Mail Online recently reported that staying at home could be saving us £559. Whether that applies to you or not, from drinks at the pub and take-away coffees to the big saving for many – the commute – you might easily find you’re saving on everyday things, during lockdown.
Tucking away the money you’d usually be spending on a commute, weekday lunch (and/or breakfast), coffees, after-work drinks, childcare (if your provider has cancelled or lowered fees), weekend trips and activities – the list goes on – can save a pretty penny, as miserable as it might seem.
In fact, saving in itself can be comforting, giving you a sense of achievement and the glow of knowing that easy-spend money is now set aside, ready for life after lockdown and your longer-term plans.
The key habit here is to have a separate pot for the money you’re saving, and trying not to dip into it. It’s there if you need it – and a great way to fund a new at-home craft supply for the kids, or upgrading your TV options to make staying in easier – but the bulk of it needs to stay nestled in your lockdown savings pot, to have any real value.
Check out our 10 best apps to save you money, for smart accounts that let you round up your savings on everyday spending, stash away cash and keep things organised.
4, Cancel where you can
Gym memberships, clubs, holidays and certain energy or utility bills – can any of these be paused or cancelled altogether, during lockdown?
It’s likely that some of your recurring expenses will go up right now (you might decide to block-buy a set of online yoga sessions, for example), but some activities will be off the cards until restrictions are lifted. Take an hour to go through your bank statements and regular direct debits, highlighting any you can look into with the provider (many subscriptions will come with an easy built-in pause function).
Booked holidays can be harder to cancel without losing money, especially if you’ve paid a deposit already or committed cash on nonrefundable extras and accommodation. Speak to your travel company and insurer and check their coronavirus policy – if they have one, it may offer something specific.
Need to refund your season train ticket? Check National Rail’s coronavirus page and head to the Refunds section. You can also check your train provider’s website, for more specific information about your ticket and journey. Remember, if your commute usually costs £30 a day, and you’re doing it five days a week, that’s a potential saving of around £600 a month, headed straight for your lockdown savings pot.
5, Shop once a week
Sectioning out your week into specific days for specific spends can be a great way of managing your outgoings, curbing any ‘boredom shopping’ and building up an unexpected cash buffer.
For example, you could commit to doing a weekly food shop, working out the meals you’ll be having, all your favourite groceries and any stand-by items beforehand. Keep it to that one shopping trip or order, and avoid heading out for smaller top-ups during the week. It takes a bit of discipline, but you’ll soon see a healthier spend pattern and more money for your lockdown pot.
The same applies to other types of shopping – things like clothes, stuff for the kids, gifts and entertainment should all come out of a specific ‘spend pot’. If your day-to-day shopping pot, for the bits and pieces you need, is separate to your retirement savings, emergency fund, or lockdown pot, it’s easier to keep on top of saving.
6, Top up your pension pot
We covered off some bits and pieces on your retirement savings in our navigating coronavirus uncertainty pensions guide. The same key principles for protecting your pot are the same, and if you’re thinking about spring cleaning your pot during the lockdown, here are our top tips:
- Keep a level head. Balances are likely to fluctuate right now but hasty choices could damage your savings. Remember, it’s business as usual here at PensionBee and if you need help, a beekeeper is just a click away
- If you’re already in retirement you’ll want to treat your pension withdrawals with caution during the downturn, only withdrawing as much as you need
- Now might be a good time to grow your pot and increase your pension contributions, as during a downturn you can usually invest more, for less money. This can give you bigger returns once the market is in recovery. And remember, you’ll usually get a boost on your contributions from the government, in the form of tax relief
Whatever you decide, remember that pensions are long-term investments, and you need to think carefully and take advice where necessary, before making any fundamental changes.