Don’t let coronavirus derail your financial plans

Many people are fearful about the financial implications of the Covid-19 emergency which, in the space of a few short weeks, has totally transformed life as we know it. 

The downturn in markets has obviously affected our investments and long-term savings, but many families are scrambling to deal with the income hit as jobs are furloughed and bonuses cancelled.

Add to this the growing sense that things will probably get worse before they get better and it can be hard to see a way through. 

Rather than panicking, now is the time to take steps to improve your relationship with money and the role it plays in your life with a view to seeking a happier, more fulfilled existence. 

Several years ago, when I was a financial adviser, I started working with Malcolm and Sally (not their real names). Malcolm, who was in his late 40s, had been a senior executive for a large corporation for nearly 20 years. Sally, who was previously an executive at a large retailer, was now a stay-at-home mum to their two teenaged children. 

In the process of exploring their current lifestyle — and the one they desired to have — it became clear that Malcolm’s job was no longer fulfilling and exciting, though he did not dislike it. Asked what was most important to them in life, the couple said good health, the unity of their family and the ability to make a difference to others. 

I then asked them to imagine their ideal lifestyle. 

They both dreamt of moving to the country. Malcolm would give up his corporate job and they would retrain, offering one-to-one coaching for executives and business leaders and hosting residential retreats. 

The new setting and slower pace of life would mean more time for physical activity and hobbies, as well as spending time with their children (who they hoped would have some involvement in the business). 

When I asked what was stopping them from living this ideal life, Malcolm pointed to the fact that their current lifestyle costs were high, and he needed his current salary to “make it all work”. Then there was the allure of several big future bonuses that he expected and the vesting dates of his company stock options. Sally felt that moving the children’s schools might be tricky.

We developed a plan that would see them slim down their lifestyle costs, sell their existing home and move into rented accommodation in the location where they wanted to buy their next home and locate their new business

To me, these all sounded like excuses. Either the ideal lifestyle they had just described wasn’t really important to them, or they feared making the necessary changes to make it happen. And if their ideal lifestyle was important to them, then their recent financial decisions seemed at odds with their stated values.

Over the past few years they had spent £20,000 on a hot tub and sauna room, although this added no value to their home. They’d had three exotic holidays in the previous 18 months, costing more than £30,000. They were running two expensive cars, both on lease plans, which sucked up over £2,000 a month. The combined cost of these things alone amounted to more than £100,000 over two years. Some had been funded from earnings and some by increasing their home mortgage. 

Fast forward two years, and Malcolm had been made redundant. He and Sally now wanted to make a reality of their ideal lifestyle.

Over the next few months, we developed a plan that would see them slim down their lifestyle costs, sell their existing home and move into rented accommodation in the location where they wanted to buy their next home and locate their new business. We developed some simple rules to make sure they restrained their natural inclination to buy things on impulse, and to remind themselves of their desired lifestyle and why it was important to them.

I’m pleased to say that Malcolm and Sally did transition to their new lifestyle. There some bumps along the way, including some challenging mental health issues with one of their children, but eventually they got there. The Covid-19 crisis has put a temporary stop to their residential retreats, but their virtual coaching business is busier than ever.

Both are physically fit from the daily exercise regime that their new lifestyle enables (and which costs them nothing). They have time to indulge the hobbies they find enriching. And the lower costs of their lifestyle compared with the previous one means they have minimised their financial worries and stress.

When something like coronavirus comes along, it shows up the weaknesses and flaws in our relationship with money and our past financial decisions. Having our financial weaknesses exposed like this can evoke strong negative emotions such as shame, guilt, embarrassment and even anger.

Editor’s note

The Financial Times is making key coronavirus coverage free to read to help everyone stay informed. Find the latest here.

The government is doing what it can to help alleviate the financial stress. It might not be perfect, or even fair, but it should help most people get through it. 

While there will be some who, through no fault of their own, are extremely financially vulnerable, there will be many more who know that their current money worries have not been helped by poor financial decisions in the past. 

Beyond staying safe and healthy, the most important thing that we can all do as we live through the unfolding situation is to learn from our past poor financial choices. Be clear what your future ideal lifestyle looks like — and the role of money in achieving it.

Jason Butler is an expert on financial wellbeing and presenter of the “Real Money Stories” podcast. Twitter: @jbthewealthman