Few of us are unaffected by the cost of living rise.
As the increased household bills start to bite, many of us are looking again at our spending and asking what we can trim to make sure income covers outgoings.
What is the cost of living?
The cost of living is the level of prices relating to a range of everyday items. The cost of living crisis UK households are currently experiencing is down to a number of reasons, including the rise of inflation, the rise in energy and fuel costs and household incomes not keeping up with these price rises.
It can be hard to know where to start and which cuts might cost us dearly down the line. But it’s worth putting in the legwork to be clear-sighted about your personal circumstances; many people overestimate how far their savings could stretch to if they were to lose their income.
Bernie Hickman, CEO of Legal & General, Retail, says:
“The fact is there is only so much people can do to manage their budgets in these difficult times but there are resources available that can help. Half of all people in the UK (52%) haven’t taken advantage of financial guidance available, including free services like MoneyHelper, to help make the most of what they have. It may feel overwhelming but we encourage people to do what they can now so they are best prepared for a further squeeze on finances coming this autumn.”
Work out your financial safety net
Understanding your money is really important. So is having a financial safety net to cover your essential outgoings. Our tool will give you an idea of how strong a position you’d be in if you lost your income. Just add in whether you have money set aside in savings and any cover in place to protect your income. It’ll help you think about changes you might want to make to build up your financial safety net.
How to understand your money better
If you’re looking to spend less or make your money stretch further, how do you decide what to prioritise? First, it’s worth taking the long view. So don’t be panicked into cutting items that are designed to help you in the future.
Complete a budget planner
A first step is making sure you know what your current outgoings are. Find a budget planner that will help you with the calculations; these are useful to make sure you include all your spending and don’t forget anything. You can download a free budget planner on our website. It’s worth looking back at your spending over a few years if you can, as that will help you see where your priorities are or how your expenditure has changed.
Think about short-term and long-term savings
While there are often short-term savings you can make, it’s important to think about the long-term when it comes to making changes to your spending. You might be considering reducing or pausing your pension contributions, for example.
This extra top-up to your monthly salary might be useful, but the long-term impact to your retirement is something to consider. You could find yourself having to work longer to make up for this gap in contributions. And paying into a pension is tax efficient and can reduce your National Insurance or student loan repayments. So when you stop paying into it, you might not see the increase in income you were hoping for.
Free Midlife MOT course
We've created a free course with The Open University to help you check your health, wealth and wellbeing, and see how to improve them. 94% of people who take it say it’s helped them. It only takes four hours or so – and you can pause whenever you need, so it’s easy to fit into your busy life.
While paying into a pension prepares you financially in the long-term, as you can’t access it until you reach your mid-to-late 50s, having easily accessible savings is a good idea. Income protection and life insurance could be a consideration, to help you and your family should the worst happen.
Think about the future
Your midlife years can often be a busy and challenging time. That’s why we created the ‘Midlife MOT’ with The Open University, designed to help you take a long-term view of where you are now and how you’d like your later life to look. It’s a free work, health and financial wellbeing check-up. It covers the importance of building your financial resilience - putting money aside for a rainy day which you might need if you’re going through financial pressures or big life events like redundancy, bereavement or a period of ill health.
If you’re over 50, this could be a good time to look afresh at your pension provision. Pension Wise is a free service from MoneyHelper that can help you understand your options. If you or a loved one are already drawing a pension, check whether you or they are eligible for Pension Credit – a useful top up to your retirement income.
If you’re worried about the rising cost of living, you can find lots of information online or over the phone. MoneyHelper offer free and impartial guidance on a range of money matters and Citizens Advice provide support on all sorts of topics, from housing to debt, work to health.