Recent financial forecasts from the Office for Budget Responsibility (OBR) suggest that the cost of living crisis is set to remain with us a little longer.
Released alongside the chancellor’s Autumn Statement, “higher for longer” is the central message on inflation and interest rates.
With prices, and the cost of borrowing remaining high, millions of UK households will continue to struggle into 2024. The problem is so bad that a recent report from Royal London suggests that households dipping into savings have created a staggering £32 billion black hole in their finances.
Thankfully, with a robust financial plan in place, this probably doesn’t tally with your current position, but that doesn’t mean that your purse strings won’t need to tighten.
Keep reading for a look at how to manage as the cost of living crisis continues and where to concentrate your financial efforts.
Struggling households are turning to savings as living costs rise
Royal London found that consumers are currently spending an extra £494 a month (on average) on housing, food and energy than they were in August 2022. Since that date, 23% of us have accessed an average of £2,623 of savings to cover rising costs.
In total, this amounts to around £32 billion of lost savings.
While around 16% of survey responders intended to dip into their savings to cover rising costs, 20% already had less than £100 in savings, and of those people, 17% had no savings at all.
5 important tips for maintaining your savings and staying in control
1. Revisit your household budget
Consider making a simple list of your income and outgoings to determine your level of disposable cash. Look for areas where savings can be made but (as we’ll see later, be sure to continue to pay your future self).
You might try adopting a specific budgeting technique, like the “50/30/20 rule”. Using this method, you’ll allocate proportions of your monthly income, with:
- 50% going towards spending on “needs”, like household bills, food, and fuel
- 30% on “wants”, like travel or evenings out
- 20% put aside for the future through savings, or pension and investment contributions.
2. Check in with your emergency fund
If you’ve been forced to dip into your cash savings recently you might have damaged your ability to ride out an emergency.
You should ideally have an easy-access account containing three to six months of your household’s living expenses. This is to cover one-off expenses or to tide you over if an accident or illness prevents you from working.
While it might be harder to maintain this fund when costs are rising, it’s also the time when a sudden financial shock could affect you the most.
Check in with your fund if it’s lower than you’d like, and budget to top it up, but remember you don’t need to do this in one go if that means neglecting other others.
3. Maintain your pension contributions
Back in December 2022, not long after inflation peaked at 11.1%, Aviva reported that nearly a quarter (23%) of Brits with pension provisions had considered drawing money from their pot or reducing (or even ceasing) pension contributions.
This would have been a huge mistake.
Sacrificing your future financial stability when times are tough in the present can seem like the only option but we can help you or your struggling loved ones.
Maintaining your pension contributions means ensuring you still benefit from tax relief (effectively free money from the government) and potentially your employer contributions.
You’ll also be forfeiting the chance of investment returns on a higher fund amount and limiting the benefits of compound growth.
4. Don’t neglect the protection plans you hold
Just as some UK workers have looked to cut back on pension contributions, others have seen their protection plans as a means to save money.
Again, though, diminishing your ability to ride out a financial shock or unexpected accident or illness could have huge long-term consequences.
If your income is vital for paying household bills, you’ll need to think carefully about what would happen if that income stream was suddenly cut. Would your family still be able to cover mortgage payments, would lifestyle changes be needed?
Simple cover can protect your family from the unexpected, so budget to maintain these payments while also checking in with your cover to ensure you’re getting the best deal.
5. Seek a reassuring word with your advisor
Rising living costs have hit households across the wealth spectrum, and all over the UK.
The best way to stay on top of your personal finances and ensure that your long-term plans remain on track is to stick to the plan. This, though, can mean making some tough decisions and might require reassurance from the experts. That’s where we come in.
At Globe IFA, our team of finance professionals can help you to prioritise your savings and expenditure to keep your budget under control in the present, and your long-term goals attainable, however far into the future they might be.
Stock markets have been volatile in recent years, from the Covid pandemic and the UK’s slow economic recovery to the mini-Budget and global war.
We can help provide reassurance, so, if you’re worried about what 2024 might hold, get in touch now.
Get in touch
If you have any concerns or questions about anything raised in this article, let us know. Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you manage your estate tax-efficiently and avoid a large IHT bill.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
