10 tips to help employees manage their finances during tough times.

Rising inflation, increased bills and energy costs, and interest rate rises are all putting pressure on household finances. The situation isn’t likely to get easier anytime soon, as inflation is also set to rise further in the coming months due in part to the impact of the war in Ukraine and the rise in the energy cap.

With this in mind, now is a great time for employees to commit to organising their financial affairs, and work out how they are going to pay for any increased interest repayments and a general higher cost of living.

WEALTH at work, a leading financial wellbeing and retirement specialist, has written a list of 10 tips for employees to consider to help them take control of their finances during tough times.

1. Create a budget – Employees should work out exactly what their income is, and what liabilities they have e.g. mortgage, debt, childcare, insurance and utility bills. If the amount of money they need each month is more than the amount they have coming in, they can then work out what action they need to take to cover their costs. MoneyHelper has a great budget planner moneyhelper.org.uk/en/everyday-money/budgeting/budget-planner
2. Review all outgoings – It is important for employees to check bank statements and make a list of what is being spent each month. It is also helpful to divide these into utility bills (gas, electricity and water), mortgage or rent costs, council tax, supermarket shopping, monthly contracts for TV, broadband and mobiles, insurance, regular subscriptions, and other spending. This will highlight where money is going and where savings could be made. They should cancel any unused subscriptions, or unused memberships they have forgotten about. If they can’t afford them or don’t use them, now is the time to get rid of them.
3. Make managing debt a priority – There are many different types of debt with varying rates of interest, and it is often a good idea to make paying off expensive debts a priority. Credit cards and overdrafts can have rates of 18 – 40%, with payday loans having rates of 1,500% and more! For example, a debt of £3,000 with a rate of 18% APR, could take 10 years and 10 months to pay off if paying £50 a month, with a total interest paid of £3,495. If that monthly payment was increased to £100 a month, the debt would be paid off in three years and four months, and interest paid would be only £908.
   A good option for any employee would be to consolidate any debts into a 0% or low interest balance transfer card, as more money will go towards paying the debt off and enable them to clear it over a shorter time period.
4. Be a savvy shopper – By switching brands it might be possible for employees to significantly reduce the price of their regular shop. In addition, by planning for the weekly shop in advance, it may help them to search for deals and reduce expenditure on non-essential items. Discount vouchers are often available through voucher and discount websites, and some employees have access to discount vouchers through their employer. This could be crucial if they have to make a big purchase, such as if their washing machine breaks.
5. Check for savings on household bills – It is possible to make significant savings on a range of household bills such as car, home and pet insurance, and broadband and mobile suppliers. Price comparison websites can help to make it easier to compare the different deals available. Increases in wholesale energy costs mean fewer deals are available right now, so it may not be a good time to try to change utility suppliers, but there are still significant savings available on other bills.
6. Start an emergency fund – Ideally, you should have 3-6 months of savings that can be accessed at short notice should you or another member of your household lose their job, become ill, or for any unforeseen expense. It’s good for employees to get into the savings habit as soon as possible, by putting away small, regular amounts of money. This can be more effective than trying to save larger amounts of money because it means you’re not overcommitting. It will ensure you budget your spending more effectively.
7. Set up a savings Direct Debit – If employees pay off expensive debts, and they can afford to save, it is often a good idea to set up a direct debit for saving into an ISA, pension or company share scheme. Often this means that you don’t notice that the money is going into your savings.
8. Start saving early – If an employee starts to save when they are younger, then that money has time to grow. ISAs are a great way to start saving, and mean they will have access to their savings in the future should they need them. It is also important to make sure that they’re saving into their pension from early on and aren’t tempted to opt out. Many are already paying 5% of their salary into their workplace pension through auto-enrolment, with an additional 3% employer contribution. However we know that many employers match additional contributions (up to certain limits).In fact, if an employee is in their 20s, by saving an extra 1% a year with their employer matching this, it is possible to increase their pension pot in retirement by 25%.
9. Beware of scams – Scammers can often prey on people during tough times and when they may be more vulnerable. They tend to sound completely legitimate and it’s easy to see why so many are fooled and it isn’t small amounts of money which are being taken. Last year, The Pension Scams Industry Group estimated that £10 billion had been lost by 40,000 people to pension scams since 2015. Defined benefit pension transfers are a particular area of concern. According to XPS Pensions Group’s Scam Flag Index, almost two in three (65%) pension transfers requests raised at least one scam warning flag in February which is a 12 month high. If someone contacts an individual with an offer which seems too good to be true, it’s vital they check whether the company is registered with the Financial Conduct Authority (FCA). The FCA’s ScamSmart website is also a good site to visit as it includes a warning list of companies operating without authorisation or running scams.
10. Take action – An employee shouldn’t worry if they don’t know where to start as there is plenty of help available. It’s always worth speaking to lenders to see if they can help if they are struggling with repayments and Citizens Advice can help them understand how to deal with any debts. Many employers offer their staff help through financial education and guidance, so make sure you speak to them to find out what is available.

Jonathan Watts-Lay, Director, WEALTH at work, comments; “Many people are feeling the squeeze due to the increases in the cost of living. It’s important to not bury your head in the sand and to get on top of your finances during tough times. Most would benefit from having a better understanding of money, but are confused where to start. Too many struggle to pay bills or repay expensive debt. Often people have direct debits for products and services they no longer use.”

He explains; “If an employee is able to save, they need to understand what the best method is for their saving goals. For example, whether that is putting something aside for a new car, their first home or retirement.  Employees should commit time to understanding what their financial situation really is, and taking action to make sure they are in control of their finances.”

Watts-Lay adds; “Many leading workplaces now provide support through financial wellbeing programmes that include financial education and guidance. This can help employees improve their financial resilience and take control of their finances.”