10 expert tips to help ‘Brexit-proof’ your finances

Planning for the worst while hoping for the best may help households prepare their finances for Brexit, according to an expert.

Sarah Coles, a personal finance analyst at Hargreaves Lansdown, said: “The impact of a no-deal Brexit would be profound and far-reaching.

“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 stock market might be volatile.

“If an agreement is eventually reached, the impact could be less dramatic – it would just depend on exactly what compromise we come to. In an atmosphere of such uncertainty, it’s worth preparing your finances for every eventuality.”

Ms Coles added: “It’s worth hoping for the best and making plans for the worst, just in case.”

Writing on the MoneySavingExpert website – moneysavingexpert.com/family/brexit-what-it-means-for-you/#economy – consumer champion Martin Lewis said: “When it comes to the short term, it’s likely that the markets in their widest sense have factored much of the Brexit impact into prices already – that includes the rate of the pound against other currencies, share prices, bond and interest rates.

“The markets, rightly or wrongly, have over the last few years tended to prefer a deal to no deal.

“So no deal will likely see the pound and the UK stock markets dip. A confirmed deal will see them bolstered a touch.”

Here are some tips from Ms Coles for preparing financially:

1. Try to keep some wiggle room in your budget.

Many people have already suffered income shocks due to the coronavirus pandemic which have made it hard to balance household budgets. But if a household spends everything it earns every month, any change in income or costs will immediately land it trouble. Keep a close eye on spending, and identify where you can cut back to free up some cash each month.

2. Build a savings safety net.

Consider setting up a direct debit into a savings account on payday, to put something aside for emergencies. Ideally people should have three to six months-worth of expenses in an easy access account in case their circumstances change. If that sounds like too distant a target, just put aside whatever is affordable.

3. Consider locking in savings rates.

If Brexit causes a big economic shock, savings interest could be lower for longer. Once you have your emergency fund in place, you could consider fixed-rate savings accounts for any other cash. Fixed rates are often higher than easy access ones, in return for people locking their money away for a set period. So if the market does fall, savers will have locked the rates in.

4. Look at fixed mortgage rates.

Fixed mortgage rates give borrowers certainty over that is likely to be their biggest monthly outgoing. Rates remain low by historic standards, but if the cost of a mortgage going up would cause a problem, people may want to consider fixing. Home owners will need to consider whether they can commit to a fixed deal though, or whether their circumstances may change.

5. Think about having a diverse investment portfolio.

It is difficult to plot a definite path for investments, but rather than making predictions, investors could think about the golden rules of investing – have a diverse portfolio across different assets and geographies, stick with it for the long term, and make use of tax breaks. That way, whatever happens to markets in 2021, investors can be positioned to take advantage of long-term growth.

6. Plan pension income.

With market volatility, if people are drawing down an income from their pension, they should think carefully about the amount and timing of the income they take. It is sensible to have one to three years-worth of expenses in cash, so retirees can switch to drawing cash when they need to.

7. If you need to convert currency, consider the timing.

Many people’s holiday plans are on hold, but it is worth considering the the timing of exchanging currency. The pound has suffered through the ups and downs of last-minute trade talks, so some times to exchange will be worse than others. Consumers could try to hedge their bets by buying in tranches, so they do not end up getting all their foreign currency at the worst moment.

8. Do not assume house prices will go up indefinitely.

The housing market “mini-boom” has been powering ahead and prices have hit new records in recent months. No one knows exactly what will happen next year, but in general prices do go through ups and downs. During the current boom, it is important to bear this in mind.

9. Plan further ahead for travel.

Well before any travel, people will need to have any medical cover required as well as the necessary paperwork if they plan to drive.

The Association of British Insurers (ABI) has previously said that insurers have put “considerable resources” into preparing for the need to issue green cards for travel from January 1, to minimise disruption to motorists.

10. Check your mobile small print.

EU rules previously put a stop to high roaming charges for many holidaymakers. Some companies have committed to keeping a lid on roaming charges for the short term, but it makes sense to check the small print before you travel, so there are no nasty surprises.

Gareth Shaw, head of money at Which? said: “Regardless of the outcome of Brexit, those living in the UK will not lose important financial protections.

“Bank deposits will continue to be protected through the Financial Services Compensation Scheme, the ban on credit card surcharges will still be in force and the right to open a basic bank account will endure.

“However, Brexit will likely cause economic uncertainty and potentially impact the value of your pension and investments, as well as interest rates.

“While it is difficult to predict exactly how the market will react, diversification is an important tool and will help mitigate the impact on your finances. Many pension providers and investment firms should be prepared for difficult market conditions.”