The UK cost of living crisis has been with us for a couple of years now. While inflation is falling, it remains at more than twice the Bank of England’s (BoE) 2% target and forecasts suggest it won’t fall back to this level before 2025.
With Christmas almost upon us, an expensive month could see millions of households feeling the pinch more than ever this year.
In fact, a Royal London survey recently found that UK consumers are currently spending almost £500 extra a month on average to cover basics like housing, food and energy compared to August 2022. This amounts to a £32 billion black hole in UK savers’ bank accounts.
Thankfully, a solid financial plan and some useful budgeting tips could help you and your loved ones. Here are three to consider now.
1. Make a list of household income and expenditure
The simplest way to revisit your household budget is to make a list of your monthly income and expenditure to discover the amount of disposable cash you have each month.
If rising costs mean that this amount isn’t enough to cover the lifestyle you were leading pre-crisis, you’ll need to think about making changes.
Having all of your cash flow listed should make it easier to see patterns and find areas where changes could be made. You might find that the money you spend on meals out, for example – when it’s in front of you in black and white – is much higher than you realised.
Itemising outgoings might also highlight forgotten subscriptions you didn’t realise you were still paying for or insurance cover you no longer need.
2. Adopt a budgeting strategy
There are several useful budgeting you might adopt. Here are a couple:
The “50/30/20” rule”
Breaking your expenditure down into needs, wants, and your own future can be a great way to tackle your household budget.
Each month, allocate your income so that:
- 50% covers “needs” like bills, food, and energy
- 30% is set aside for “wants” like evenings out
- 20% is diverted into your pension or savings.
Paying your future self first is vital so be sure you cover the 20% first. Once you have contributed to your future financial security, budget with what remains.
Values-based budgeting
Another simple approach to adopt is known as “values-based” budgeting.
For this method, take your list of monthly outgoings and reorder them so that the highest priority expense is at the top with the least important outgoing at the bottom.
Now you simply see how far down the list your monthly income will stretch each month. As long as you pass below the “needs” section of your priority list, anything below this level will be an area where you’ll need to consider cutting back.
3. Revisit your emergency fund
An emergency fund is a key part of your financial protection and can be invaluable when the unexpected strikes.
Ideally, you’ll need to keep between three to six months of household expenditure in an easy access savings account to tide you over if an emergency occurs.
The Guardian recently published figures confirming that 22% of Brits had either ceased (14%) or reduced (8%) their pension contributions due to the cost of living crisis. This could have huge implications for their future financial security, highlighting the need for a rainy day fund.
Check in with your emergency fund now.
The recent economic climate of low savings rates and high inflation means that the real terms value of your emergency pot might have been eroded. Be sure it is still fit for purpose while also remembering not to hold too much in cash.
Despite falling inflation and slowly improving rates, the potential for investment returns and the tax efficiency of wrappers like pensions and ISAs mean that these remain a great option.
Get in touch
If you would like help managing your household budgeting during the cost of living crisis, our expertise means we can keep you on track in the present while ensuring your long-term goals remain attainable too.
Get in touch by emailing hello@fingerprintfp.co.uk or calling 03452 100 100.
Finally, remember that these tips could be incredibly useful for friends and family also struggling with rising living crisis so be sure to pass your knowledge on.
