How to future-proof our finances

On Sunday I joined Laura Whitmore on BBC Radio 5 Live to discuss how to future-proof our finances. With waves of redundancies happening across all industries and the threat of a recession coming. It's time to buckle up those finances. I thought I would share my thoughts in this article.

Furlough scheme is due to end in October, but for many, it is already over

9.5 million people have been put on furlough since March according to official HMRC figures. The furlough scheme was optional and designed to be a safety net to safeguard people’s jobs.

The furlough scheme is 100% funded by the Government until the end of July. However, with businesses now being asked to contribute and businesses still in a state of flux, or unable to fully resume business. You will, unfortunately, see an additional wave of redundancies through to the end of the year. 

How to prepare ourselves financially

For the next 12 months, nothing is certain. Whether you are planning to return to work or are currently looking for alternative employment. Despite the many incentives to start consumer spending. Don't splash the cash. If you are on furlough, make sure you squirrel away money on payday. If you have been made redundant, make sure you put that redundancy money to one side.

1. Create a new lifestyle as your new normal

You will need to undergo a complete mindset shift as well as a lifestyle change. It is so easy to fall into old habits. You don’t want to feel resentful for “denying” yourself or going without. So replace with other things.

Create a new normal for yourself and adapt. Don’t splash the cash as soon as you are out of lockdown.

2. Try to not spend on non-essential items

We all have been guilty of buying multiple Amazon deliveries and no doubt wine/beers/food. Reduce your micro-payments. By reducing or eliminating your spend on non-essential items. You will free up money to start building up a reserve of money for your emergency fund.

If you are returning to work. Make sure that those naughty little habits don’t creep back in. Those lattes on the way to work. Buying clothes on your lunch break and drinks in the evening with colleagues after a long break at home.

3. Audit your finances and track your expenses

If you haven’t already done so. Audit your finances. That means going back through your statements for at least 6-12 months to reduce your outgoings.

Prepare a monthly budget and track your expenses. I use a spending app to track my day to day spending, as well as Monzo which categorises your spending.

4. Automate your savings

Use an automation app such as Chip, that automatically puts money aside for you based on your spending habits, so you can save without thinking about it!.

Also, automate savings as soon as payday comes around using Standing Orders. You won’t notice the money leaving your account and it’s important to have a reserve when you need it.

I have multiple bank accounts for different things. One for essentials, one for everyday spending and then other savings accounts that I can't easily access.

5. Create an emergency fund

In the words of Stephen Bailey, “we need to create a rainy day fund when we have just been through a monsoon.”

3-6 months is a benchmark for an emergency fund. However, don't let this figure put you off saving. It doesn't matter how small an amount you start to save. Just start. A couple of years ago. I started saving ￡25 a week for a year and hid the bank details from myself. That was a fun hour trying to find those bank details when I did finally need that money, but it worked! This might seem difficult for anyone on a low salary or out of work, but start to build up a reserve of money, whatever the amount you can afford.