The challenging reality for many people of having to make ends meet on benefits during the pandemic was underlined by the widespread calls ahead of the Budget for the government to retain the ‘temporary’ £20 weekly uplift to universal credit. This has now been extended for another six months and will be paid to the end of September.
It has become clear that the lowest monthly standard allowance of £342.72 for single claimants under 25 provides a minimal amount to live on. A waiting period of up to five weeks before payment starts also doesn’t help.
With unemployment continuing to rise and the precarious state of the economy, it is more important than ever to build your own financial safety net. You need to ensure that you can continue to pay your essential bills and maintain your living standards if you were to meet with redundancy as well as illness or accident.
Save for a rainy day
The Covid-19 crisis has highlighted how quickly ‘safe’ jobs can disappear with little or no warning when economic conditions change. So, if there is a chance of becoming unemployed, you’ll need an emergency ‘rainy day’ fund to help cover mortgage payments and other bills.
How much you set aside will depend on your individual circumstances, but a good rule of thumb is to have enough savings to cover three months of essential bills. It may not be easy to put this aside all at once but accumulating small amounts regularly can help build a financial buffer.
The best savings account for an emergency fund is one that gives you easy access. Interest rates are low at present, but it can pay to shop around between instant access and ISA accounts.
Insure your life and income
Savings can provide a short-term stop gap if your income disappears temporarily, but insurance provides a more effective safety net against the financial consequences of death or serious illness.
Life insurance is the fundamental building block of most families’ finances. A lump sum paid on death can help to pay off a mortgage and other debts or be used to set up a fund to provide an income. Life cover is relatively cheap and, given the very minimal benefits that the state provides, protection shouldn’t be left to chance.
Likewise, income protection insurance can provide valuable support if you find yourself unable to work because of ill health. With this type of insurance, the typical payout is two-thirds of your income, although there is usually a ‘deferral period’ of three or six months before benefits are paid. These payments are more generous than statutory sick pay, which is just £95.85 a week for up to 28 weeks.