7 handy tips to help you cope with the rising cost of living in 2022

Woman looking in empty wallet

An unprecedented combination of events means that we’ll all be facing an increase in the cost of living throughout 2022 and potentially into next year.

The rate of inflation has already exceeded 6% and a report from the House of Commons library projects it could reach 9% by the end of 2022.

On top of that, the well-publicised increase in gas and electricity prices will affect all British households, with energy regulator Ofgem confirming that bills have gone up by average of 54% this month.

Factor in an increase of 1.25 percentage points in the rate of National Insurance contributions (NICs) for both yourself and your employer, and petrol prices exceeding £1.70 a litre and it’s clear to see that we can expect turbulent financial times ahead.

In this article, you’ll find seven steps you can take to help cope with the rising cost of living.

1. Check to see if you’re paying the right amount of tax

One of your biggest monthly outgoings will be the tax you pay to HMRC.

As this is usually determined by your tax code, it makes sense to check that this is actually correct.

You can do this via the government website or by speaking directly to HMRC.

At the same time, make sure the information they are using to calculate the tax you pay is up to date and accurate. You may find that it isn’t, and you could even be due a refund if you’ve overpaid tax in the last year.

This simple process could save you money going forward.

2. Understand the impact of inflation

Increasing inflation means rising prices, which means the purchasing value of your money decreases.

In simple terms, inflation of 7% will mean that something that cost you £100 a year ago will now cost you £107.

If your income is not increasing at the same rate, this means you may need to adjust your spending to balance your income and expenditure.

The increases in the cost of household energy bills and petrol are much higher than the rate of inflation, and this will put extra pressure on your household budget.

3. Make sure you have a handle on your finances

It’s always important to ensure you’re managing your money as effectively as possible, and the current cost of living challenges make this even more essential.

To ensure you have a firm handle on your finances, you need to know what your monthly outgoings are, and how that compares to your income.

Knowing this can help you plan ahead and you’ll be able to see where you can make adjustments to your spending to save money. 

A good starting point is to put together a schedule of all your regular outgoings, including monthly direct debits and standing orders. 

Next, review your discretionary spending – effectively the money you choose to spend each month.

Breaking this down under specific headings such as food, clothes, eating out, and travel will give you a clear idea of where your money is going and how you can start reducing your outgoings if you need to.

4. Look for ways to reduce your monthly outgoings

Now you have a detailed schedule of your outgoings, you’ll have a good idea of how much you need to save on your regular outgoings to reduce your expenditure. You should also be able to identify areas where savings can be made.

Check that all your direct debits and standing orders are correct, that they’re still required, and that the right amount of money is being taken.

Then look at your outgoings and see where you could make savings.

For example, insurance is a competitive market for consumers. This means that, for ordinary domestic insurance policies such as motor, household and property, it may be worth using a comparison website when you get your renewal notice to see if you can find a cheaper price. 

5. Review your savings and investments

As well as considering your household finances, you should also be aware of the effect rising inflation can have on your wealth – particularly your savings and investments.

Given the increased differential between inflation and the average interest rates on savings accounts, keeping savings to a minimum and instead increasing the amount you have invested gives you a better chance of your wealth keeping pace with inflation. This is obviously subject to your investment timescale and what you’ll ultimately want to use the funds for. It's also important to remember that investment accounts do not afford the same security of capital as deposit accounts.

For any money you do keep in savings, such as your emergency fund, it’s worth shopping around for a better rate to offset at least some of the effects of inflation.

For example, if you have an emergency fund of £25,000 in a Lloyds Bank Easy Saver account you’ll only be benefiting from a rate of 0.01%, which would give you interest of just £2.50 a year.

By switching to an online instant access account with Yorkshire Building Society you could enjoy a rate of 0.71%, boosting your interest by £175 a year to £177.50. (Details correct as at 6 April 2022)

When it comes to your pension fund and other investments, rising inflation is only an issue if you need to withdraw money in the near future.

One of the best ways to reduce the effect of inflation is to take on more investment risk, which gives you the potential for higher returns.

Increased risk can inevitably mean a greater chance of short-term volatility, so it’s wise to speak to your financial planner about changes to your investment strategy. 

6. Reduce the effect of rising energy prices

It’s clear the unprecedented rise in household energy costs – with a further rise coming in October 2022 – will further effect your household finances.

The current reduced availability of fixed-rate tariffs means that the only effective way to reduce your bills is to cut your consumption.

Two of the best bits of advice we’ve come across recently are to take regular meter readings so that you’re only being charged for the energy you use rather than an estimated amount, and to ensure everyone in your household is aware of the importance of reducing consumption.

7. Plan ahead

With any big financial challenge, having a plan in place to deal with it, and then sticking to that plan, is always a prudent approach.

By planning ahead, you’ll have a clear understanding of what steps are required, and the effect they’ll have.

Sensible planning also helps to improve your chances of achieving your goals. For example, being able to meet the cost of an expensive event – such as a big holiday or family wedding – is far easier if you’ve set aside regular savings rather than having to find the money in one go.

The same applies with dealing with the impact of an increase to the cost of living. Having a plan in place could help you to reduce the effect of rising prices and you may find that the actual impact on your finances is minimal.

Get in touch

If you’d like to discuss any of the issues raised in this article and how we can help, please get in touch. Email info@aspirafp.co.uk or call us on 01454 632 495.

The value of your investment can fall as well as rise and is not guaranteed.

The information contained in this article is based on the opinion of LEBC Group Ltd and does not constitute financial advice or a recommendation to any investment or retirement strategy, you should seek independent financial advice before embarking on any course of action.

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