One in ten would use a windfall to keep their head above water

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on findings from a survey (carried out for Hargreaves Lansdown), which shows one in ten people would use a windfall to keep their head above water.

Key points:

If they got a £1,000 windfall, one in five people would spend it on essentials, and another one in five on paying down their debts. It means one in ten would use it to keep their head above water.
Women are more likely to use it for paying bills (22% compared to 17% of men).
Those aged 25-44 are most likely to use it to repay debts (26%).
32% would put it into savings and 10% would invest it.
Men are more likely to invest a windfall (14% of men and 5% of women), and women are more likely to save it (33% of women and 31% of men).
10% would treat themselves and 4% would give it to other family members.

Sarah Coles said:

“One in five people are struggling so much to make ends meet that if they got a windfall out of the blue, they’d use it to pay for essentials – like bills. Another one in five would use it to pay down existing debts, so that in total one in ten would need to use a windfall to keep their head above water after the pandemic seriously damaged their financial resilience.

“But not everyone is in the same boat, because while a significant minority continue to struggle with the after-effects of the pandemic, others have come through the past 18 months relatively unscathed. On the other side of the divide, is just over half of people who would either put the money aside for the future, give it to someone else, or just treat themselves.

“It’s positive to see that almost half of people would put the money aside for the future, either in savings or investments. The crisis has made so many of us realise the enormous difference it can make to build our resilience, by having an emergency savings safety net to fall back on when times are tough. It’s one reason why putting the money away was more popular than splurging the money on a treat. At the moment, many of us are getting more reward from building a sense of security than we would from a shopping spree.”

What to do if you’re struggling:

If you’re struggling to make ends meet, then chances are you’ve already done the first step of drawing up a budget and working out how you can cut unnecessary spending. It’s also worth exploring every possible avenue for help. This includes making sure you have applied for any benefits you may be entitled to. If you’re having trouble negotiating the system, you can get free expert advice from StepChange and Citizens Advice.

If you’re worried about debt, you need to speak to your lender sooner rather than later, to see what repayments you can afford and what they’ll agree to. This will affect your credit score, but not as badly as if you just miss payments. If you can’t face this, debt charities like National Debtline and StepChange can talk to lenders for you – and help you find a solution.

If your financial problems are affecting your mental health, Mental Health & Money Advice is a useful, free service, as is the charity Mind. The key is to try and talk about your worries with someone you trust. Your GP should also be able to point you in the direction of local support groups.

How to build emergency savings:

We should all be working toward 3-6 months’ worth of essential expenses in an easy access account while we’re working age (1-3 years’ worth in retirement).
The easiest way to build this kind of money up is to work out where you can cut back spending, to free up a sum of cash each month.
Don’t worry if rising prices makes it difficult to set much aside. Whatever you can afford is better than nothing.
Set up a direct debit to come out of your account on payday and into a competitive regular savings account.

Hargreaves Lansdown has launched 5 to Thrive, providing the five building blocks to help people build their financial resilience:

1. Control your debt

Debt isn’t in itself a bad thing, but ensuring you can use it for your benefit rather being controlled by it is crucial. High cost debt can be particularly damaging for your finances.

2. Protect your family

No-one is immune to something going wrong, and if something happens to you, it can hurt your loved ones. That’s why things like protection insurance, the death benefits on workplace pensions and writing a will are so essential.

3. Save for a rainy day

It’s impossible to predict when things could go wrong, so it’s important to get ahead of the game by building a cash buffer for unexpected emergencies.

4. Plan for later life

We can’t just focus on what’s around the corner, so we need to think about the long-term too. Getting to grips with your pension and making sure you’re building a large enough pot for retirement will help protect you when you finish work.

5. Invest to make more of your money

Once you have built your short term resilience and are confident in your pension savings, you can consider investing, which gives you the opportunity to make your money work harder for you.

Hargreaves Lansdown is putting together a package of educational material, insights, tools and guidance designed to help people become more financial resilient. More details are available at: https://www.hl.co.uk/features/5-to-thrive.

They are also building a new financial resilience barometer. This will help people better understand their financial resilience and what they can do to improve it. It will launch in January 2022.

Kindly shared by Hargreaves Lansdown

Main photo courtesy of Pixabay