Business

We're in a financial Perfect Storm - and the waters are getting choppier

We're in the midst of a financial Perfect Storm, and waters are already getting choppy . . . but we ain’t seen nuthin’ yet

DO you remember the film Perfect Storm, with George Clooney and his crew battling high seas in their fishing trawler the Andrea Gale?

Well, we will all be heading into our own Perfect Storm, very soon.

A new report underlines just how important is to get our household finances in order very soon – especially if you are a single person working.

The Office for National Statistics (ONS) has just published its report “Income, spending and wealth: how do you compare?” which shows that one in three of us (35 per cent) were living beyond our means even before the pandemic began, by spending more than we were earning.

Now we are playing catch-up, but of course we are facing a financial nightmare this year, as the costs of petrol, oil, and energy are already skyrocketing and the price of bread and wheat staples, including anything made from flour such as pasta, look set to follow suit as exports from Russia, world's largest wheat producer, and Ukraine, world's fifth-largest are certain to be hit. Between them their grain supplies to us have given them the name ‘Europe's breadbasket'.

During the pandemic, more than half of young single workers led in spending – but not in a good way, they were far more likely than any other households to be overspending and storing up financial problems for this year. Even people who were able to squirrel away some savings, while lockdown made it very difficult to socialise or generally treat ourselves to clothing or a holiday, will be hard hit by the eye-watering prices rises that are under way.

And it's no surprise that lower earners will have a harder time of it than those on average or good earnings.

Other people are forced to dip into long-term savings they had before, which could otherwise have been invested for their retirement. There could come a time when the savings are eaten up and many will have nothing to fall back on.

That's our financial Perfect Storm, and waters are already getting choppy, but we ain't seen nuthin' yet.

Nearly half (46 per cent) of households overspending before the pandemic had a financial buffer that would cover their costs for less than a year.

Retired people were better able to withstand the challenge, and sustain spending by using cash reserves that would last much longer than people who were still working. Again, those are reserves that could have been put to work harder for them in investments, rather than being diverted into household essentials, to avoid the painful choice ‘heat or eat'.

The ONS defines such a financial buffer as cash, savings, share investments, but not property or pension income.

Having such a financial buffer gives you the desirable protection of ‘financial resilience'.

A separate survey of 10,000 people published last June also showed that financial resilience is an increasingly rare luxury.

The study confirmed that almost a third of women (29 per cent) worry about their debts, compared to 23 per cent of men, and over a third (37 per cent) of women say they are ‘just getting by ‘ or ‘struggling', compared to 29 per cent of men.

For all of us this year, we must at all costs avoid the ‘ostrich strategy', burying our heads in the sand and hoping that the financial ‘Perfect Storm' will simply go away.

Do you think it would be worthwhile picking up the phone to let us help you with some advice on making yourself, and your family, more financially resistant? We can help keep your boat afloat this year!

:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice or at www.mkennedyfinancial.com

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