The Lemonade Principle: making good use of your lockdown time

‘Grandma, what did you do in the coronavirus lockdown?’ ‘That’s when I started the family business.’ Yes, we have to stay at home – but that’s no reason to be bitter. Sweeten your lockdown experience by taking some decisive financial action at last. Article by Nick Green.

‘When life gives you lemons, make lemonade.’ As the saying reminds us, there are two ways we can face misfortune. The nationwide lockdown to fight COVID-19 has turned lives upside down, cancelled holidays, put careers and other plans on hold, and hit businesses hard. It may be a small price to pay to save lives, but it still hurts.

There’s no doubt that the coronavirus has served us all a huge dish of lemons. But if you remember the old soft drinks company that first made Tango – yes, that Corona – it should remind you that lemons can be useful. So if you’re stuck at home now with empty hours to fill, think of those things you said you’d do… if only you had time.

Even if they start out carefully planned, most people’s finances end up in a muddle after just a few years. Now is your chance to get them properly straightened out. Let’s make some lemonade.

Track down your lost pensions

Could you be owed a share of £19 billion? That’s the amount estimated to be tucked away in pension pots that UK savers have simply lost track of. Around 1.6 million pension pots are estimated to be misplaced or forgotten about, with an average value of £13,000 each. It’s particularly easy to lose sight of a pension if it was from a job early in your career, when you were young and in no mood to think about getting old.

The money in these lost pots is still yours, and you can find it again. And you should, because the money might perform much better in your current pension. Now that you have time and head space, find out how to track down a frozen pension.

Consider gig work

This doesn’t mean playing with your band in pubs – that’s out for the foreseeable future. But thankfully, we now live in a ‘gig economy’ where it’s possible for anyone to provide services commercially without leaving their home.

Broadly speaking, if you have a skill, then someone out there wants it and may pay for it. If you’ve never considered the money-making potential of the things you know how to do – whether it’s music, art, teaching, DIY (yes, you can instruct someone remotely), embroidery, coding, or even just having a great reading voice – now you have time. And if you do already market your skills remotely, think about new ways you could expand your services now that everyone has to modify their lifestyles. Find out more about earning in the gig economy.

Bring your money in line with your risk tolerance

If you have savings, you’ll probably be gloomy about how interest rates have shrunk to near zero. If you have investments, you may be thoroughly demoralised by the way coronavirus has crashed the stock markets. The key thing to remember is that both are just examples of financial bad weather – only temporary.

More important in the long term is to ensure that your savings and/or investments are set up in a way that suits you. This means aligning them not just with your life goals, but also with your tolerance of risk. Risk is defined here as ‘How much can you afford to lose?’, ‘How long do you have to recover?’, ‘How much will you be relying on this asset?’, and ‘Who else do you have responsibility for?’ (among other things). When you have more time to think about such details of your life, you can start to get a clearer picture of how well you can tolerate risk. Risk tolerance isn’t about how careful or reckless you are personally – rather, it’s about your overall circumstances. Often, you may find that your risk tolerance is far higher (or lower) than your natural instincts have been telling you.

Now you can start to realign your savings and investment to better reflect your circumstances and life goals, rather than take a haphazard or overcautious approach. Find out more about investment risk and how to channel this into setting investment goals.

Save your savings from the doldrums

Just because savings rates are low everywhere, doesn’t mean that some aren’t lower than others. Far too many Brits currently have savings stagnating in accounts that pay as little as 0.05 per cent a year. By contrast, there are still savings accounts out there paying as much as 1.9 per cent interest – that’s 38 times as much. Citizens Advice has estimated that savers are losing out collectively on £800m a year by not moving savings from low-paying accounts into better ones. Switching a savings account is a classic ‘I’ll do it when I get round to it’ chore – well, now there is no excuse. Search up the best value savings account for you and start earning.

Combine your pensions

If you’ve had a number of different jobs, you’ll probably have several different pensions – all invested with different providers and charging a range of different fees. In most cases (though not all) it makes sense to combine your pensions into a single pot, both to reduce costs and maximise growth, and also to make the whole thing easier to manage. You can combine your pensions at any stage of your career.

This is something for which you’ll need the help of a financial adviser – but don’t worry, you can still consult an IFA without breaking the lockdown. Find out how to see a financial adviser remotely.

Check your pension ‘Expression of Wish’ forms

You’d rather not picture the nightmare scenario in which, at some point in the future, your ex-spouse inherits what remains of your pension and leaves your current family with none of it. But this can happen surprisingly easily, because pensions (strangely) don’t count as part of your estate, and so are not covered by your will. In order to specify who will inherit your pension after your death, you need to update the Expression of Wish form that you will have filled in when you joined the scheme. If any of your pensions pre-date your current relationship, it’s time to bring them up to date. Find out more about pensions and inheritance.

Check your life insurance beneficiaries

The same problem can affect life insurance policies, according to insurer Phoenix Life. Their research shows that six out of 10 life insurance policies have never been updated since they were taken out – meaning that many may now name the wrong beneficiaries. If you have any life insurance policies that were taken out before you began your current relationship or family, it’s a good time to check who’s due to receive any payouts – just in case!

Take control of your spending

They say that supermarkets are a billion pounds richer as a result of coronavirus-induced panic-buying – all of which turned out to be unnecessary. It’s a reminder of how people’s spending can get out of control when emotions get involved, and why it’s so difficult to maintain a personal budget. Even during prosperous recent years, over half of Brits have said they would struggle to pay an unexpected bill of as little as £500. Even relatively high earners have found themselves living hand to mouth, with little awareness of the connection between how much they spend and the size of their income.

We call this ‘money tunnel vision’, and it can happen when you only see the immediate expenditure in front of you, and not the other less-visible costs that you have to manage over time. Now is a good opportunity to check out our guide to money management and say goodbye to tunnel vision.

Make or update your will

No, we’re not being pessimistic here. The absolute best time to make or update your will is when you’re in the peak of health. But again, it’s one of those things that people say they’ll do, and often never get around to. Sixty per cent of UK adults still don’t have a will, and this includes 37 per cent of those aged 55 or over. Dying without a will means it’ll take far longer for your beneficiaries to inherit your estate, and they’ll face greater costs and stress as a result. At worst, it could mean that the wrong people altogether end up inheriting your assets.

Find out why you need a will and get it done!

Dream up your money spinning idea

We’ve all woken up from dreams of how we could make a million… before it dawns on us that selling luminous jelly bookcases won’t work in real life. But what about those famous names who had wild ideas that really did work? With plenty of time to daydream, you can now take your inspiration from six amazing money-spinners that paid off. From the founding of eBay to a near-miss involving a Harrier jump jet, these real-life fairytales will show you that sometimes a wild idea does deliver the goods.

For more inspiration, we also bring you six ideas for starting your business, and how to turn your idea into a business model.

Get a free financial checkup – remotely!

The simplest way to uncover any issues with your finances, pension or mortgage is to consult a professional who offers a free check-up service. Many of the advisers and brokers on Unbiased offer these free consultations, which will provide a concise overview of your present situation and identify areas for improvement. Four kinds of free check-up are available: pension, mortgage, investments and general financial health. You can find participating advisers when you use the Unbiased matching service (see below). Learn more about free financial health checks.

The best news is, you can still obtain these free consultations (and other advice services) while the UK is in lockdown. Most IFAs and mortgage brokers are happy to help you remotely – find out how to get financial advice online or over the phone.

No-one quite knows how long the coronavirus lockdown may last. But if you tell yourself that every crisis can also be an opportunity, you may look back on this period as the time when you made some truly meaningful decisions.