The rapid escalation of the cost of living crunch means that it feels as if a lot has changed for our finances this year.
The bad news has come so thick and fast that the Chancellor has now stepped in again, with Rishi Sunak revealing a package that involves everyone getting £400 off their energy bills – with help no longer to be repaid – pensioners getting an extra £300 and a £650 one-off cost of living payment for those on means-tested benefits.
While we knew a squeeze was coming as we celebrated Christmas, there weren’t many saying that inflation would be knocking on the door of double-digits come Easter and we’d be worrying about a recession.
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But this has turned out to be the case, with the most recent ONS figures reporting inflation at 9 per cent in April, and warnings coming thick and fast that things will get worse before they get better.
I wrote my final column of 2021 in anticipation of a tougher year ahead, with five tips to combat the rise in the cost of living and make yourself feel a bit richer.
Events have been such since that the latter element seems a bit redundant now: the general mood five months on isn’t about getting richer but about not feeling much poorer.
The former sentiment of trying to tackle the cost of living squeeze stands, but this has got a lot harder, so I thought it was time to take stock and revise those tips.
1. Budgeting: get a good grip on your finances
My first tip was to do some old-fashioned budgeting. This sounds both blindingly obvious and tedious but getting a good idea of where all your money is going is wise.
It is astonishing how many of us only have a vague idea of what we spend and on what.
Budgeting is the cornerstone of managing your money and getting richer not poorer.
It’s also easier than it used to be, as the information is much more readily available thanks to internet and mobile banking. You can access your bank statements online, and export them to an excel spreadsheet, you can sign up for one of the many budgeting apps, or you can get a pen and paper out.
However, you do it, just do it.
Go through and categorise your spending, working out what goes on monthly bills, essentials, shopping, travel, children, socialising etc. Just having that reasonable idea of where your money is going will make you feel more in control and then you can see where you can try to cut back a bit.
2. Can you save on your bills?
Switching energy provider is out of the question right now and your bills are almost certainly going up, but there is other stuff you might be able to save on.
Are you coming to the end of your mortgage? Rates are rising, so speak to a broker and lock in the best possible deal now. Read our guide to remortgaging for tips.
What about your other regular expenses? Could you save on broadband or your TV package? Are you overpaying for your mobile? Have you got subscriptions you don’t need? Do you just keep renewing your home or car insurance, or breakdown cover? Go through those regular bills and check if you can save. Visit out Save Money, Make Money section for tips and tools to help you compare prices.
3. Have you got debt you can make cheaper?
If you have personal debt, can you shift it to a cheaper rate? The classic here is a credit card balance on a high rate that people aren’t paying off, but there may be personal loans too. If you’ve got credit card debt, check the best balance transfers in our top credit card picks. If you have loans or car finance outstanding, can you move them to a cheaper rate?
If you are really struggling with debt, make sure you get help. Speak to Citizens Advice or a charity such as StepChange or NationalDebtline.
4. Get a better savings account
Don’t put up with ‘insult accounts’, this is what I call bank and building society legacy savings rates, paying as little as 0.1 per cent. You won’t come close to beating inflation, but savings rates have risen substantially and top easy access accounts pay up to 1.31 per cent.
Check up on all your accounts and move the money to a best buy rate, you can find the top savings deals in our indepedent tables. Also consider managing your accounts in one place with a savings platform, these are great for not losing track of pots and letting them slip onto those pitiful insult rates.
5. Invest some money
Investing spare money doesn’t sound like a way to combat the cost of living crunch, but it is. What you are doing here is protecting the future value of your current wealth and income.
If inflation sticks at 9 per cent for the next year and you only earn 1.3 per cent on your savings, you will lose 7.7 per cent. If you can invest money in the stock market and close at least some of that gap with share price gains and dividends, then you won’t lose as much.
Just remember, investing is a long-term game and you need to be aware prices go down as well as up, particularly over short periods such as one year.
If you have large amounts of cash savings that you don’t need in the near future and a rainy day pot safely set aside, then you should consider investing at least some of your money.
There’s no guarantee shares will rise – they might even fall – but investing has been proven to be the best way to grow your wealth and beat inflation over the long-term. Read our guide to getting started investing the easy way and our round-up of the best and cheapest stocks & shares Isas and investing platforms,
6. Help others
Chances are that if you are reading This is Money, you will be among Britain’s more financially switched on. There are lots of people who really struggle with this stuff though and it’s also quite likely you know some of them. Share your knowledge and give them a helping hand.
If you know anyone who is really struggling financially, point them in the right direction for help from an organisation such as Citizens Advice – and make sure they are getting all the benefits they are entitled to.
There is a major issue where many people at the lower end of the financial scale and many pensioners don’t claim everything they are entitled to. These are the people for whom the rapid rise in the cost of living really is a crisis, give a leg-up where you can.