Money Anxiety Is Way Up — Here’s How To Protect Your Cash & Your Mind
Six months after the UK first went into lockdown we are now in recession, with the economy in turmoil, the furlough scheme that has kept people paid through the worst of it about to end, and planning for the future seemingly naive. Is it any wonder that our anxiety (particularly financial anxiety) is at its peak?
Experts are warning that economic instability is explicitly causing people’s anxiety levels to increase. The pandemic was already having a major effect on mental health: in June, the Office for National Statistics published a study identifying an uptick in anxiety, particularly among those who report feeling lonely and those who are married or in a civil partnership.
The Priory psychotherapist Dr Natasha Bijlani has warned that the faltering economy will continue to cause anxiety levels to rise, adding that job loss and insecurity are a major cause of ill health and anxiety.
These anxieties are understandable and to some extent inescapable but you shouldn’t let them make you feel powerless. When you have all the information at your disposal, there are things you can do to gain some peace of mind.
To bring you some of that clarity and a little bit of calm, we asked Tim Perkins, the cofounder and director of the financial wellbeing platform nudge, to weigh in on some of the biggest money anxieties kindly shared with us by our Money Diaries UK Facebook group.
Whether you’re worried about getting on the property ladder, job security or managing your rainy day fund, there are steps you can take.
Getting on the property ladder
“I don’t know if I am ever going to get on the property ladder as the economy is in a state of crisis. Working frontline within the NHS gives me a stable income (which I am thankful for, especially during this pandemic) but I currently still live with my parents (in a rented flat) as London prices are far too much for me to move out just yet on my own and I would like to know how to save/organise so I can soon buy a property for myself. I have a help to buy ISA but no idea where to start on saving or credit or anything really! I have opted out of my NHS pension currently as I didn’t see the need for it.” — Tash, 24, London
The first step onto the property ladder can be daunting. However, when buying your first home, there are schemes which can help you get started sooner than you might expect. From equity loans to shared ownership, there are plenty of reasons to remain optimistic.
Equity loans
When you buy a home, you usually save money to put down a deposit and then take out a mortgage to cover the rest — a stretch for many. But equity loans offered by the government can help cover some of the cost, reducing the deposit and mortgage needed and making it more affordable to buy. These loans can cover anywhere between 15% and 40% of the cost of the property.
The amount you borrow has to be repaid but there is usually an interest-free period. The most common equity loan scheme is called the Help to Buy equity loan. The exact scheme, rules and eligibility vary according to location.
Shared ownership
Under shared ownership, you can buy a share of a home and pay rent on the remaining share, usually at a reduced rate. You have the opportunity to staircase — increase the share you own over time — and can eventually take full ownership of the property with most schemes, if you want to.
Rent to buy and rent to own
There may be an option to rent a home at below the market rate for a period of time, then have the option to buy it at the end — the idea being that the reduced rent means you can save money to buy. Offered through local authorities, the availability of this kind of scheme varies according to location and eligibility is specific to each scheme.
Maternity rights
“I’m currently on a fixed term contract which runs out at the end of the year. I work in an industry where FTC (fixed term contracts) are normal and COVID has stopped my opportunity of permanent contract, but I’m looking to start a family and not sure about maternity pay and rights on fixed term.” — Emma, 25, Hampshire
Starting a family is an exciting time and it shouldn’t be dampened by additional financial stress — even if your employment status might be vulnerable. We can’t comment on individual maternity pay agreements, as these vary by employer. But there are a number of benefits and forms of support that you can seek out to help alleviate these worries — from free dental treatment and prescriptions to paid time off for antenatal care, no matter how long you’ve been in your job.
And if you were to end up in a situation where you were eligible for benefits, you may be entitled to a one-off payment of £500 to help towards the costs of having a child via the Sure Start Maternity Grant, and you could also receive support for buying basic foods like fruit and milk in the form of vouchers.
Savings for my kids’ future
“While I’m not immediately looking to conceive, my husband and I have been talking about it. I’m looking to change career or add a second stream of income but knowing how much I want to save for a child’s future (e.g. tutoring, activities) so that they don’t have to worry while maintaining an income so we can save for retirement freaks me out and makes me think perhaps I shouldn’t have a child!” — Nikki, 32, Bristol
Having a baby is one of life’s greatest experiences but it can be expensive and stressful — even without money worries in the equation. With a bit of planning, you can control your spending and minimise your stress.
Firstly, saving a little every month can add up quickly and create a very useful nest egg for your little one later in life when they need it.
And if you think you might have more children, many people save lots of money by recycling their children’s clothes, so try to buy neutral clothes so your little one’s brother or sister can make the most of those expensive outfits that only lasted a few weeks!
Finally, depending on your income, your family status and a few other factors, you may be eligible for financial support from the government. This could consist of direct financial benefit or tax credits.
However, you need to make sure you get your claim for child benefit in before your baby is three months old. Even if you think you won’t be entitled to anything, you should still claim — otherwise you’ll miss out on a number of other entitlements.
Anxious about spending money
“I’m anxious about the potential loss of work. Both my partner and I are in positions where we’re fortunate enough to have been largely unaffected by the pandemic in terms of our job security — but the unknown means it can never be guaranteed and we worry what would happen if we both lost our jobs and how quickly we’d run out of money.
“On top of that I’m now anxious to spend money. I have previously been in a lot of debt, and I’ve now got ‘rainy day’ savings for the first time in my life. My mental health has taken a hit and online shopping would previously have been something I’d have used to cheer myself up — this is making me anxious because I’m struggling to find a balance between the occasional treat (without feeling guilty about it) and having nothing to enjoy at all (due to lockdown, staying inside, etc.).” — Stephanie, 30, Gloucester
We appreciate that a core cause of anxiety and financial stress is feeling out of control of your finances. In fact, our recent research revealed that 52% of UK employees worry about money at least once a week. But you can always take control of your finances to safeguard yourself and build a brighter financial future.
There are many approaches to budgeting. The 50/30/20 rule is a great example, whereby your money is divided into three categories: needs, wants and saving. Your spending should fall into one of these categories, with needs accounting for 50%, wants 30% and savings 20%. This popular method can help you balance different priorities, allowing you to meet your spending commitments and enjoy yourself while also saving for the future too.
If your money worries are causing you to feel anxious, it’s important to know you’re not alone. There’s lots of support out there and many places you can go to get free advice on the steps you can take to help you get back on your feet financially.
You may feel anxious about talking on the phone or opening your post, particularly if it’s about money you owe, but it’s important not to ignore these things as you may start incurring more charges for non-payment. Ask a trusted friend or family member to help you out if you feel like you need extra support with opening post and emails.
Similarly, letting your creditors know about your mental health issues will help them to better understand your situation and could make them more sympathetic when following up on your debt.
Most importantly, if you’re struggling with your mental health it is very important to talk to your GP about how best to address these health issues.
Losing my house deposit
“The pandemic has made me really anxious about being able to afford to buy a house in the near future. Before COVID-19, we were saving money for a mortgage deposit and hoping to buy at the end of 2020. However, I then lost my job and my partner had a significant pay cut. So then not only were we no longer saving money, we began to use some of our savings to pay for day-to-day living and bills. While things are beginning to improve and I’ve found another job, the housing market in Ireland is quite sparse and houses expensive. We’re beginning to feel that we’ll never be able to afford a house in the place we grew up. We would have to move across the country, away from our jobs possibly, to be able to afford a house.” — Niamh, 30, Dublin
As prices rise, it gets harder for those wanting to get on to the housing ladder to be able to save enough for a deposit and we understand that COVID-19 may have made this even more difficult. So when you think it might not be possible to save enough for a deposit, it’s helpful to weigh up the alternatives.
Make the most of your savings
When your savings capacity is somewhat limited, it can be easy to leave all your cash in an instant-access savings account. But by doing this you could in fact be losing money as inflation and rising house prices eat up the little interest you earn.
Have a look for other products that offer a better return for your hard-earned cash and help you build up that deposit.
The bank of Mum and Dad
Although not an option for everyone, it’s common for parents, or even grandparents, to offer additional funds to help boost a deposit. However, before asking for this help, it’s always a good idea for everyone involved to discuss the pros and cons of each option.
Similarly, if you’re thinking about asking for an ‘advance’ on your inheritance, bear in mind the rules on inheritance tax.
100% mortgages
With a 100% mortgage you won’t require a deposit! These types of mortgage generally depend on several factors, including requiring a family member to act as guarantor, but they are well worth looking into in case they are an option for you.
Lack of emergency fund
“If I lose my job I will probably only have enough for bills for two months. My emergency fund is nonexistent. Could I be evicted? Am I ever likely to earn more money in the near future?” — Sophie, 30, Derby
With job uncertainty higher than ever, many are fearful of redundancies and the resulting financial consequences. If you’re worried about not being able to pay the rent, don’t bury your head in the sand. In fact, you should talk to your landlord as soon as possible. Whether the problem is due to a change of circumstances or a budgeting problem, there are key steps you can take to help get yourself back in control.
It’s always best to get the issue out in the open rather than waiting until you fail to make a payment, which may leave your landlord in a trickier position. So when speaking to your landlord, explain why you’re going to be late with the rent and ask for some extra time. Make sure you’re clear about what you are doing to address the problem to help ensure it won’t happen again.
Cutting back can be difficult but it won’t be as painful as being evicted from your home, which is why it is vital you act now. Ask yourself: can I ditch any of my regular monthly expenses or cut back on any luxuries? Do I have the cheapest tariff for all my monthly bills? Can I switch to a 0% credit card and save on interest payments?
Simple steps such as spending less on going out or new clothes means you’ll be in a much better position, with savings banked to helped pay the rent even during times of economic uncertainty.
Income protection insurance is one option for those worried about maintaining their income or losing work through accident or long-term illness but it’s worth bearing in mind that it may not kick in overnight should you need it.
Entering the job market
“I’m terrified of entering the job market for full-time or part-time jobs. I am about to begin my master’s degree and taking a gap year is not feasible in my situation. I have saved significantly less than expected in the summer between graduating from my bachelor’s and beginning my master’s due to COVID’s impact on jobs around the world. Now, with less savings, I am struggling to find a part-time job like I had anticipated and now my worries of finding a career following graduation are at an all-time high. I’m trying to make myself as employable as possible but with no savings to my name, my anxiety has skyrocketed.” — Jordan, 21, Bath
We understand that leaving education and entering the job market can be a very stressful period. And you’re definitely not alone. In fact, our recent research revealed that 49% of 16–24-year-olds are feeling more anxious about money than they were six months ago.
It’s really important to put in a little time and effort now to help manage your money and feel more financially secure. An emphasis on money management early on in life is a great habit to get into. It can help you stay on top of your bills and potentially save thousands of pounds each year, as well as put you in greater control and help you reach your dreams and goals.
If you’re spending more than you have coming in (especially if you’re yet to find a job), you need to work out where you can cut back. This could be as easy as keeping a spending diary, noting everything you buy in a month. Or, if you do most of your spending with a bank card, have a look at last month’s bank statement and work out where your money is going.
This will be new to a lot of young people, so don’t feel embarrassed to get family and friends involved with helping to keep a budget. Sit down together and make a plan that you can stick to.
Working out how much spending money is available to you and what your essentials are will help you budget and plan for your future effectively.
Originally published at https://www.refinery29.com.
