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).

 

Inflows, net of tax, Q2 last year vs Q2 under lockdown

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.

Selected outflows, Q2 last year vs Q2 this year in lockdown

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.

12 thoughts on “What has lockdown done to my finances?”

  1. Thanks for sharing this, an interesting read for sure. It’s been obvious lately how much our government are stepping up the whole “it’s safe to go out, please go and spend money” agenda and you can see why. We’ve been out a few times and with the noticeable exception of large sunny beer gardens, it’s all pretty quiet. In times of great uncertainty, most people are waiting it out still it seems – despite the pics of huge q’s at some shops.

    So no, I guess I can’t add much optimism from a UK perspective. It was going to be a tough year anyway with all the Brexit/No-Deal stuff to get through. One thing I will say is never underestimate how much people adapt – or how much boredom drives them to spend! I think winter may see an uptick just because people will be wanting to be entertained after the sun has gone?

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    1. John – I don’t normally pay much CGT, as I don’t normally sell stuff, so I am relatively sanguine about CGT going up. If income tax fell I would be very surprised…..
      I would very much support removing the tax advantage of property, e.g. the PPR allowance. I think a lifetime allowance on PPR CGT would be hard for all but the Torygraph to attack but would assist the process of making people realise that property is wealth and not some God given ‘roof over the head’.

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  2. I think in very broad brush terms the higher your income/wealth, the more you’ve been insulated.

    In financial terms this is my best year. I’ve worked only three months (I then took a 6 month sabbatical) but I made more in comp terms that any prior year. I didn’t make as much in US$ P&L terms as 2008 or 2009; more like the tantrum of 2013. But in those days I was paid just 12%, now I’m paid 20% so comp ends up higher.

    My personal portfolio is also doing well. Again not the best % return but it’s up over 20% YTD and I’ve hardly had to trade it. I’ve marked the illiquid stuff down. Properties, including PPR, down between 5-15% and slashed my PE marks by 25-50% but all these are <20% of my portfolio. My two BTLs are paying fine. I don't really look at dividends since I don't trade single stocks.

    Spending is way down. The school cut fees 20% for the summer term. We've cancelled overseas holidays. I've haven't been to London since late Feb so all that spending has gone. All forms of consumption are down.

    My perception is most of my colleagues and ex-colleagues are also having a good time. A few blew up in March and lost their jobs but most are doing very well. Volatility is generally good for my business area.

    Of course this all has to be rather weighed up against the fact I (or my family) might die of COVID19. That destroys any and all enthusiasm.

    Liked by 1 person

  3. Interesting write up. As always I enjoy your blog posts. Sorry I sound critical sometimes it’s difficult for middle income fire types to relate to the high income, high spend types. You enjoy the finer things in life, and nothing wrong with that. Lockdown has been a tough time for all. We finally went back to work in split teams in June. With lockdown easing lot of people are out and about pretty much as usual. I also think there will be an economy bounce back in winter. There’s a lot of pent up demand out there. Cheers

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  4. I’d agree with the pent up demand. I work in insurance and I’ve been surprised by how the tone of my clients (mainly small businesses <£10m turnover) in a variety of sectors have changed from March's fearful doleful tone to far more positive. They've mostly said they are busy. Even a restaurant client has said if it continues as is they will survive the year

    On an individual level this will be very hard as always but it's a case of having sufficient resources to survive until the bounce back (I reckon towards the end of next year) if the worst has happened. Alot of people won't be able to either through conspicuous consumption or just not earning enough to have the bandwidth
    We've started venturing out but to places with outside space and or large airy restaurants. Again I think it will depend on the individual pub/restaurant. Also eating outside now is fine winter will be a whole different ball game

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  5. Edit
    I work in the regions. I think London itself is going to be very hard hit as by its nature its dependent on over capacity. Maybe a rebalancing is in the offing

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  6. We are doing very well on a snapshot personal level. We have not had to pay our highest expense (childcare) for the last 4 months, yet managed to maintain our normal salaries. So just looking at pre and post lockdown, I could be very optimistic and happy.

    Unfortunately I am fearful for our future, my industry is losing millions every day at the moment, and the industry has been in decline for a couple of decades now. I wouldn’t be surprised if we weren’t trading this time next year. I would be surprised if we were still going in a decades time.

    As a result I have been cautious about where I have put the excess. Rather than ploughing it into the stock market, I have opted for premium bonds so I can guarantee it is available if required. My cash reserves (including premium bonds) at now closer to 18 months “normal” spending. Too much?

    Liked by 1 person

    1. For someone in your position 18 months’ worth doesn’t sound too much to me.

      Governments are going to try to fight the forthcoming depression by stimulating a little bit of inflation. I dare say they’ll miscalculate and eventually give us more than a little bit. So if you should happen to own Index-Linked Savings Certificates I’d hold onto them. After all, if I’m wrong and inflation turns negative the ILSCs retain their nominal value. Hedge funds don’t offer such a handy hedge.

      Liked by 1 person

  7. Get an electric car, and maybe even via your Ltd company.
    I haven’t used TFL since March either and now just drive our electric into central for everything. Free congestion charge and free parking in Westminster borough,

    Liked by 1 person

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