Six tips for sorting out your finances as recession fears rise
The rapidly escalating cost of living crisis means we feel like a lot has changed for our finances this year.
The bad news has come so fast that the Chancellor has now stepped in again, with Rishi Sunak revealing a package which involves everyone getting £400 off their energy bills – with aid that will no longer be repaid – the pensioners receive an additional £300 and a one-time cost of living payment of £650 for those on means-tested benefits.
While we knew pressure was coming as we celebrated Christmas, few said inflation would knock on the door in double digits at Easter and we would worry about a recession.
Optimism surrounding a post-Covid rebound has turned into worries about a cost-of-living crisis and potential recession: so how can you protect your finances?
But that has proven to be the case, with the most recent figures from the ONS pointing to 9% inflation in April, and warnings mount and multiply that things will get worse before they get better. .
I wrote my last column of 2021 in anticipation of a tougher year ahead, with five tips for fighting the rising cost of living and feeling a little richer.
Events have been such since then that this last element seems a little redundant now: the general mood five months later is not to get richer but to not feel much poorer.
The old feeling of trying to tackle the cost of living still holds, but it has become much more difficult, so I thought it was time to take stock and revise this advice.
1. Budgeting: get your finances under control
My first piece of advice was to do an old-fashioned budget. It seems both obvious and tedious, but it’s wise to have a good idea of where all your money is going.
It’s amazing how many of us have only a vague idea of what we’re spending and on what.
Budgeting is the cornerstone of managing your money and making it richer, not poorer.
It’s also easier than before, as information is much more readily available thanks to the 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 whip out a pen and paper.
However you do it, do it.
Review and categorize your expenses, calculating what goes on monthly bills, essentials, shopping, travel, kids, socializing, and more. Just having this 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 providers is out of the question right now and your bills will almost certainly go up, but there are other things you could save on.
Coming to the end of your mortgage? Rates are rising, so talk to a broker and get the best deal possible now. Read our remortgaging guide for tips.
What about your other regular expenses? Could you save on broadband or your TV package? Are you paying too much for your mobile? Got subscriptions you don’t need? Do you keep renewing your home or car insurance, or your breakdown insurance? Go through these regular bills and see if you can save. Check out the Save Money, Earn Money section for tips and tools to help you compare prices.
3. Do you have debts that you can repay for less?
If you have personal debt, can you transfer it at a cheaper rate? The classic here is a high rate credit card balance that people don’t pay off, but there can also be personal loans. If you’re in credit card debt, check out the best balance transfers in our top credit card picks. If you have outstanding auto loans or financing, can you downgrade them to a cheaper rate?
4. Get a better savings account
Don’t accept “insult accounts”, that’s what I call legacy savings rates from banks and building societies, only paying 0.1%. You won’t be close to beating inflation, but savings rates have increased dramatically and the best easy-access accounts pay up to 1.31%.
Check all your accounts and transfer the money at the best purchase rate, you can find the best savings offers in our independent tables. Also consider managing your accounts in one place with a savings platform, these are ideal for not losing track of pots and letting them slide on those pitiful insult rates.
5. Invest some money
Investing spare cash doesn’t sound like a way to combat the cost of living crisis, but it is. What you are doing here is protecting the future value of your current wealth and income.
If inflation remains at 9% the following year and you only earn 1.3% on your savings, you will lose 7.7%. If you can invest money in the stock market and close at least some of that gap with stock price gains and dividends, you won’t lose as much.
Remember that investing is a long term game and you need to be aware that prices go down as well as up, especially over short periods like a year.
If you have large cash savings that you don’t need in the near future and a rainy day jar safely set aside, then you should consider investing at least some of your money.
There’s no guarantee that stocks will rise – they could even fall – but investing has proven to be the best way to grow your wealth and beat inflation over the long term. Read our guide to getting started with investing the easy way and our roundup of the best and cheapest stocks and shares Isas and investment platforms,
6. Help others
Chances are that if you read This is Money, you will be among the most financially savvy Brits. There are a lot of people who really struggle with this stuff and chances are you know some of them as well. Share your knowledge and lend them a hand.
If you know someone who is really struggling financially, point them in the right direction to get help from an organization like Citizens Advice – and make sure they get all the benefits they’re entitled to. .
There is a major problem where many people at the bottom of the financial scale and many retirees are not claiming all they are entitled to. These are the people for whom the rapidly rising cost of living is truly a crisis, lend a helping hand where you can.
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