March 2020

The Coronavirus “CV” situation, coupled with the collapse in the oil price has created the most challenging economic conditions that the North East of Scotland has seen in our lifetime and, unsurprisingly, resulted in requests for the Meston Reid & Co insolvency team to provide personal financial advice.

Job loss and/or a reduced salary level will undoubtedly leave many people/households in financial difficulty. Most of us have a relatively set amount of income e.g. a job or State benefits, or a mixture of the two, but what happens when earned income all but disappears ?. Equally in these CV times, those who are self employed are highly likely to experience fluctuating income e.g. a share fisherman or no income e.g. events organiser, with downward movement as work dries up.

Whilst the first reaction tends to be one of panic and uncertainty, a clear head is required to look at matters objectively. The key areas of focus when looking at what is affordable are maintaining a regular flow of income ( howsoever that is achieved ) and essential expenditure.

If you are unlucky enough to lose your job, there may be some redundancy to live on, or you may face a reduction in income from your existing employer. For most, such outcome is largely outwith your control and although banks are making every effort to be supportive and family members might be in a position to provide short term gifts/loans, there remains a natural requirement to document the position in order to explain it to both yourself and anyone who might be approached for assistance.

Clearly, cutting back on expenditure is never an easy/happy task, and it is hard to make choices when one has become used to a certain standard of living. Everyone has a different view on what is essential, which tends to mean that an independent second opinion helps to introduce a sense of reality and pragmatism.

The first step in taking charge of the household expenditure is to prepare a monthly budget that covers a full year. Taking a twelve month view helps to even out income fluctuations and identify those months when expenditure is higher than normal. For example, it may well be acceptable to spend a little more in some months e.g. a holiday in Summer or at Christmas, if there are other months when you expect to have reduced outgoings, and undertake to stick to the budget rather than spending cash in a quieter month simply because it has not been earmarked for a specific purpose.

There are plenty of sources of a standard income/expenditure analysis e.g. the Meston Reid & Co website Scotdebt.net. Using a bespoke document will provide a memory trigger in order to ensure that all items are included in the assessment. This exercise will show an overall picture and if the figures reveal that you are spending more than you receive, the expenditure analysis will require careful review in order to identify where you can cut back. Clearly, the first area to assess is non-essential outgoings e.g. cancelling/downgrading a subscription TV service or reducing hobby expenditure. Of course, one positive aspect of the CV situation means less socialising and hence less costs in this area.

Even if you have little disposable income after paying essential expenditure i.e. mortgage and utility bills, there remains an opportunity to assess where savings can be made e.g. undertaking a mortgage review or taking advantage of the recently announced mortgage deferral for three months. Perhaps switching utility providers will reduce your costs.

However, it is not always possible to know what lies ahead. In the event that an unexpected event arises you will find that the budget requires to be revisited which, as an exercise in itself is no bad thing.
Your monthly budget will also take account of repayments to credit providers. When you have store card and credit card repayments that stretch the family budget, one has to take a view on how best to tackle them. For example you might decide to pay the minimum sum for a month or so but remain mindful of adhering to the terms of every credit agreement because falling into arrears can become a serious matter. With one eye on the CV situation, one would not expect a creditor to threaten formal debt recovery proceedings and Banks and HMRC have gone out of their way to make it clear that they want to help wherever possible. If there are pressing creditors why not have a chat with them and explain your position.

Boring, and perhaps as obvious as it sounds, you should exercise caution when considering a “quick fix” by using a payday loan or a credit because that step can quickly become a long term financial drag on household finances. The view that all expenditure is essential, despite what your friends may say, should not cloud your judgement about your own position.

If you are struggling to establish a clear picture in respect of your personal finances you can approach an approved money advisor for assistance and advice.

This article is written by Michael J M Reid, licensed insolvency practitioner and partner of Meston Reid & Co, Aberdeen. The views expressed in this article are his rather than of the firm.