What has lockdown done to my finances?

Rainy Sunday mornings are perfect times to do household admin. In my case household admin centres on my personal finances. This gave me an opportunity to examine what has happened to my income and expenditure during lockdown.

Lockdown in England began on March 23rd, just at the end of Q1. Normality, by which I mean pubs/restaurants, resumed to a large extent on July 4th – just at the start of Q3. This makes Q2 a good period to examine what happened as a result of lockdown.

Income: down 32%

This simplified analysis just looks at cashflows entering/exiting my accounts. This is net of taxes (unlike my annual review which considers gross income and treats taxes as an expense).

 

The graph above shows what’s happened to my inflows. Dividends fell by ‘only’ 15%. Rent halved. And my earnt income dropped by 30%.

However, to interpret the graph we need some context. In Q2 last year, I moved my Previous Home from ‘rental property’ (with tenants) into ‘for sale’ (empty). So it gave me some rent in the quarter, but not a full amount. I finally sold it in February this year, and moved the proceeds almost immediately into the stock market (at the market’s record highs, sigh). This makes rent and dividends somewhat interchangable across these time periods.

Either way, my total ‘unearned income’ dropped by 33%. This is consistent with the general observations that dividends have dropped 30-40% during lockdown. Grumble.

As to my earned income; my employer asked higher-paid folks like me to take a temporary pay cut. This could in fact have been worse, but it had an impact. Thankfully, since 1 July these pay cuts have stopped, so my ‘selling time’ income should be back to normal.

Implications for the economy

My inflows tell the story of the wider economy. 9m people have been furloughed, seeing a drop in income typically of 20% but frequently more. Landlords have often received only partial rent – in some commercial landlords’ case, only 20-30% of rent due.

The impact from the drop in dividends is the hardest one to assess. In theory whether a company pays dividends or not makes little difference to the investment return. So to the extent that the drop in dividends represents a deferral, rather than a permanent cut, it may just be a cashflow thing. My gut says though that this is more cut than deferral and this represents a material hit to profits. This hasn’t shown up much in (global) stock market prices, but it will affect cashflows of pensioners and other investors.

Expenditures: down 20%

My spending reveals the bizarre whipsaw impacts of lockdown on the economy. Lockdown has been by no means a bad thing for many sectors.

My spending on ‘needs’ is up threefold in Q2. One reason for this was an unexpected (urgent) medical bill. Let’s clap for the medical sector’s earnings over the last few months. I was lucky to be able to get treatment in fact, in the land of lockdown.

The other driver of increased spending on ‘needs’ is Groceries. While my normal spending on Groceries normally seems quite chunky, the reality is that I don’t eat at home that much. Now that I’ve been working at home, a lot more of my eating has been via groceries (‘needs’) than takeaways/dining out (‘wants’). My spending on food/groceries is up more than double. My spending on Ocado has tripled. And my spending on wine has, erm, quadrupled!

You’ll see as well a 420% increase in ‘projects’. I’ve taken the opportunity in Q2 to do some important repairs to my Dream Home. I’ve known this was coming at some point; it became clear recently that 2020 was the year to do it, and in fact lockdown has seemed like a great opportunity. In this respect I feel like half the local restaurants/pubs, who have also taken the opportunity of lockdown to do refurbishments/etc. L’economy, c’est moi, once again. Builders/housebuilders/etc have by and large been busy – after a few weeks of uncertainty.

My ‘housing’ costs have almost halved in Q2. Although interest rates have dropped, reducing my mortgage expenses, what has really happened here is that my handyman has been too busy to work for me. As per the point above; he’s had plenty of work to do so I’ve had to fight for his time. Last year I had quite a bit of random work for him, especially in the garden, and he was happy to take it.

Another group of folks who have had a pretty good lockdown are asset managers/bankers. The government has kept the retail bankers busy, with its proliferation of Bounce Back Loans/similar. And those asset managers, who are paid largely based on assets under management, will have been relieved by the global stock market recovery. It’s a shame my investment expenses aren’t pegged to dividends (down 30%); my bank charges/etc are down only 1% on the quarter. My private banker has doubtless been busy, but he’s being paid for it.

Unsurprisingly, my spending on utilities has been pretty flat. Electricity spending has dropped a bit, so has my phone bill (no roaming charges!), though Thames Water seem to be charging me a bit more. I shall expect a full dividend from all these folks.

This leaves just one other category of my spending to discuss: my ‘wants’. This category, termed by {indeedably}, encompasses all my other discretionary spending. This means dining out, travel, gifts, charity donations, etc. It is usually my biggest single spending category, even bigger than my taxes. And it has dropped by 92%.

I normally spend a lot of money eating out. And throughout Q2 you couldn’t eat out in London at all. At first, even Deliveroo didn’t operate properly – though it quickly recovered and then has steadily expanded its range of restaurants to some truly exciting ones like Hakkasan. Even as an avid user of Deliveroo, spending more than £100 on a meal for two is a special event. Pre covid-19, my usual bill for ‘date night’ would be around £140 and I would quite frequently spend a lot more. So my spending on ‘dining’ in Q2 is down 75%. Alchohol is the big difference here; I never order alcohol from Deliveroo. £30 would normally buy you an ‘entry level’ bottle of wine in a central London restaurant (and, ahem, I would normally spend more!), but it buys a very drinkable bottle from Majestic Wine or Berry Brothers & Rudd.

I also spend a lot of money on travel. Not only have I not been able to travel anywhere, but I have had refunds from cancelled events/trips, so my spending on travel in Q2 was actually “minus £1038”. My spending on flights last year was over £7k; this year it was £2. Pity the travel sector; no wonder every hotel/airline/etc is keen to provide credits/vouchers not cash refunds.

I didn’t spend any money on Transport For London in Q2 – I haven’t used the tube since early March.

I didn’t use a single taxi in Q2 – sorry about that, Uber etc. I refueled my car once last quarter, versus five times in Q2 last year. No wonder the oil price went negative.

I also didn’t get any money out of an ATM at all. The cashless society is here, today, in London.

The other sector I am reminded of by this analysis, that hasn’t caught much media attention, is the charitable sector. My spending on charities, including politics, is down 98%. Part of this is the lack of an election/referendum (hooray! erm, no, boo! hang on….). And part of it is, I suppose, just my lack of ‘animal spirits’ at the moment. I’m guessing this must be a very difficult time for any charities reliant on ad hoc donations.

Buried in the big numbers, there are ‘wants’ that I’ve spent more on in Q2. Media subscriptions, for one – hence Netflix’s booming share price. And I’ve spent £1000 more on ‘shopping’ than last year – hence Amazon’s booming share price – though this is not a big category for me.

What’s next?

Whichever way you look at it, my personal circumstances mirror the alarming headlines about the UK economy – a drop of 20-35% in the quarter. The real question is what happens next, as lockdown is being released.

My office is still 90% empty. That is a lot of tube journeys that aren’t happening. A lot of Pret meals that aren’t happening. A lot of pub visits that aren’t happening. A lot of shopping that isn’t happening. I expect to be in the office a bit in Q3, but I think only 20-30% of us will go in on any given day.

I am off to the continent a couple of times in the next few weeks, with luck. France and Italy will benefit from a significant jump in my ‘wants’ expenditure. I suspect as part of these trips I will make a single taxi journey, and a single tube journey, breaking a fourth month abstinence.

I am eating out again. Hallelujah. But not at the same places, and not as often. My guess is that my ‘Dining’ expenditure will be about half of the normal figure. My taxi expenditure will remain very subdued. I will continue to use Deliveroo/similar a lot more than I did last year.

I will host at home more, especially if the weather allows me to do so outside. This means my wine suppliers will get even more of my business than they did in Q2. So too will my grocery suppliers.

I will, deliberately, increase my charitable contributions. But I am not intending to catch up from the missed Q2 donations.

I am hoping to avoid significant medical expenses.

I expect to see my inflows down about 10% in Q3. But I suspect my outflows will be down by more. That will be good for my savings. But that bodes badly for the economy. Winter is coming.

How does my experience compare to yours? Is there a more optimistic assessment that I am missing? Do let me know your thoughts.