10 tips to Brexit-proof your finances
At the moment, preparing your finances for Brexit is like packing for a British summer holiday: you’ve absolutely no idea what kind of climate you’ll be in, or what the environment will throw at you, so you need to plan for every eventuality.
If there’s no agreement, the Office for Budget Responsibility predicts economic growth could take another hit and unemployment could rise. If this comes to pass, interest rates could remain ultra-low for longer, sterling could fall, we could see more inflation, and the stockmarket might be volatile.
However, if we get an agreement, any or all of these things could be kept under control – it would just depend on exactly what deal the negotiators are able to thrash out.
When the future is so uncertain, it’s difficult to make concrete plans. So, it’s worth hoping for the best and making plans for the worst just in case.
1) Have wiggle room in your budget
If you spend every penny you earn every month, any change in income or costs will immediately land you in trouble, so keep a close eye on your spending, and identify areas where you can cut back to free up some cash each month.
2) Build a savings safety net
Set up a direct debit into a savings account on payday, to put something aside for emergencies. Ideally, we should all have three-six months’ worth of expenses in an easy access account in case our circumstances change. If that sounds like too distant a target, put aside whatever you can afford.
3) Lock in savings rates
If Brexit causes an economic shock to the system, savings interest could be lower for longer. Once you have your emergency fund in place, you can consider fixed rate savings accounts for any other cash. This means you’ll get slightly higher rates, and if the market does fall, you’ll have locked them in.
4) Fix mortgage rates
There’s an enormous amount of value in having certainty over one of your biggest monthly expenses at a time of real uncertainty over everything else. Mortgage rates remain incredibly low by historic standards, so if the cost of your mortgage going up would cause you a problem, consider fixing.
5) Have a diverse investment portfolio
It’s difficult to plot a definite path for investments, so rather than making predictions, it’s sensible to stick with the golden rules of investing: make sure you have a diverse portfolio across different assets and geographies; stick with it for the long-term; and use your tax breaks. That way, whatever happens to markets in 2021, you’re still well positioned to take advantage of long-term growth.
6) Make a plan for pension income
If you’re in drawdown, think carefully about the amount and timing of the income you take. Retirees should be drawing the income naturally yielding from investments to protect their pot when markets are more volatile. This is one reason it’s sensible to have one-three years’ worth of expenses in cash, so you can switch to drawing cash when you need to.
7) If you need to convert currency, consider fixing now
Not many of us are planning an overseas trip in the immediate future, but if you are, it’s worth thinking about currency. Whether it rises or falls will depend on any possible deal, but you can hedge your bets by locking in a rate on some of the cash now – so you can be sure you’re not buying it all at the worst possible time.
8) Don’t overpay for property on the assumption things will go up forever
The property mini-boom has been powering ahead since the first lockdown was lifted, and in some areas has meant hot competition for popular properties. It means prices are defying gravity. We don’t know exactly what will happen to the market next year, but we do know that prices go through ups and downs. During this boom, it’s important to bear this in mind, so you’re not tempted to over-pay for your new home.
9) Plan further ahead for travel
The end of freedom of movement will make things more complicated, and while the exact arrangements are still being agreed, we know we need to be better at planning ahead. Well before any travel you’ll need to be sure your passport has at least six months of validity left, you have any medical cover required, arrange visas, and ave the paperwork you need if you plan to drive.
10) Check your mobile small print
EU rules put a stop to extortionate roaming charges for many holidaymakers. When those rules come to an end, some companies have committed to keeping a lid on roaming charges for the short-term. However, it makes sense to check the small print before you travel, so there aren’t any nasty surprises.
Sarah Coles is personal finance analyst at Hargreaves Lansdown