With UK inflation now at 9.4% (June 2022), the highest level for 40 years, many people are finding it is more expensive to lead the sort of lifestyle they have been used to in recent years.
Prices will continue to rise for some time to come and ahead of us this winter, we know the essentials including energy and food will increase further. With this in mind, now is an ideal time to review your finances and plan a budget to make sure you continue to make ends meet and to keep your longer term financial goals on track. Here are our tips to help you plan.
- Keep a short-term financial diary.
For a month keep a log of all your financial transactions, however small. At the end of the month compare with previous spending and the difference should be immediately noticeable. Writing down all financial incomings/outgoings will keep you more accountable and should help pull you up on those impulse buys.
- Provision for emergency
Typically, the advice is that you should have three month’s salary put away in case of emergency but many people had to dip into savings during the pandemic and you might not have been able to save as much again. Of course, this is much easier said than done. However, make an effort to prioritise your savings but with rising inflation be wary about keeping too much cash in the bank, use your annual ISA allowance to ensure you receive the best returns in the most tax efficient way. This leads on to our next point…
- Treat your savings as a bill
It is easy to have savings as a ‘low priority’ when it comes to monthly outgoings. However, having finances in place for those long term goals and for an emergency fund ultimately will leave your future self with more room to move. Decide on an attainable amount to put away each pay day and prioritise it as you would paying your bills. Setting up a direct debit may take the temptation to skip the saving away.
- Treat debt as a priority
Paying off your debts should be another of those things you keep as high priority each pay day. If you have savings in place you should struggle to find genuine reason to have any credit card debts or loans. More than likely, you’ll be paying a much higher rate of interest on those debts than you can earn in a savings account. In most cases you’re better off using your savings to reduce your debts to as close to zero as possible.
- Get into the practice of budgeting
Establishing a good budget will in the long term take the stress out of managing your finances. Having a good idea of where your money is coming from and going to will give you more confidence in what ‘wriggle room’ you may have financially. Ultimately this should lend to a more comfortable life from pay-day to pay-day, as opposed to the potentially stressful method of ‘flying by the seat of your pants’.
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