Increased cost of living
It should be no surprise that the cost of living is rising significantly.
We already know that:
- Inflation is up 5.5% since January 2021
- NI contributions are increasing 10.4% from April
- The Ofgem energy price cap will increase by 54% at the same time
- The Bank of England is raising interest rates.
Combine this with many of the ongoing supply chain issues arising from both the Coronavirus pandemic and Brexit, it’s no surprise that many households are starting to feel the pinch.
What can you do about it?
We’ve established the key areas you should focus on to protect yourself from financial difficulty going forwards.
Review your spending
We’ll start with the most obvious, and this is the advice that you have surely seen from every financial commentator across social media, newspapers and TV already. Essentially, one of the only ways to get immediate relief in your day to day budget is to reduce your spending. There are only three ways you can do this. Reduce something you spend money on, eliminate it entirely or find a cheaper alternative.
You can follow this three-step framework for everything you spend money on:
- Can I or do I want to eliminate this cost entirely?
- Can I use it or do it less?
- Is there a cheaper alternative?
These three questions will allow you to make sure your existing expenditure is as efficient as possible. From groceries to hobbies to your kid’s subscriptions, it’s important to understand where your money is going and whether it’s actually improving your quality of life.
Unfortunately there’s only so much you can cut spending without negatively impacting your quality of life. Because of this, it’s important to think long-term about how you reduce the impact of any future cost increases.
Upskill or retrain
For most people, income is the number one driver for quality of life. The higher your income, the less pressure you’ll feel from cost of living increases. This means more freedom and flexibility in day-to-day choices. For this reason, it’s really important to find ways to maximise your income.
Depending on your career, this may involve trying to upskill, to allow you to apply for roles with more responsibility and higher earning potential. If you’re in a relatively low paying career, you could consider retraining to give you the opportunity to earn more. You may even consider options for self-employment or starting a business on the side. This won’t make a difference overnight, but it will put in a much better position over the long-term. Regardless of the avenue you take, it’s important to consider ways to increase your future earning potential.
Invest for the long-term
Increasing your income is important, but using that income in the right way is equally important. It’s easy to fall into the trap of “lifestyle inflation” where increasing earnings are eaten up by nicer clothes, more expensive groceries, and better holidays. Whilst it’s important to enjoy the fruits of your hard work, it’s also vital that some of these additional earnings are put towards growing wealth for the long-term.
One of the key benefits of investing is that it allows you to take advantage of future price rises. When you’re a customer of a company, it impacts you negatively when they raise their prices. When you’re a part-owner of that same company by owning shares, you benefit when they raise their prices.
Investing is a complicated topic and not something to go into without significant research and advice, but if you’re prepared to spend the time learning, it can be incredibly beneficial to improve your long-term wealth. Again, this isn’t going to help with the current price squeeze, but it’s a vital step to ensure you’re as protected as possible against ones that will surely arise in the future.