Cost of living crisis and the impact on savings
The rising cost of living is impacting households far and wide, putting pressure on budgets. Prices are rising, most notably, for energy bills, groceries and filling up the car with fuel. One knock-on effect when bills get more expensive is the difficulty for individuals to maintain their current level of monthly savings.
A new study revealed that three in five (62%) already admit they are struggling to maintain savings commitments, with a third (33%) highlighting the increased cost of living was the main obstacle. Other barriers included a lack of income (28%), high outgoings (18%) and prioritising debts (15%).
The report showed that those aged between 35 and 55 were most likely to cite the cost of living as the main hindrance to saving, with 37% of respondents in this category reporting problems compared to just 31% of those aged between 18 and 34 and 55+1.
Continuing to save and invest is important to ensure you strive towards your financial goals.
There are a number of ways to maintain a savings habit when household finances get tighter.
Here are five key pointers:
The key to being able to save is to spend less than you earn. This is harder when monthly outgoings are heading north. But by perhaps limiting spending in other areas, you can continue on your investment journey. Take some time to look through your bills and make sure you’re on the best deals for everything from your mobile phone and broadband to your mortgage and TV subscriptions. Keep going until you have made some savings.
“You can keep hold of a bigger portion of your earnings by claiming all the tax reliefs you’re entitled to.”
REMIND YOURSELF OF YOUR GOALS
Maintaining your savings habit will be made easier if you remind yourself of your long-term goals. It’s easier to resist cutting monthly savings when you know it will delay reaching those goals.
AUTOMATE YOUR SAVINGS
Hang on to or set up a monthly amount on payday that goes to your savings and investments. As a reminder, investing on a regular basis can help you become a more disciplined investor. You’re forced to invest regardless of whether the price is high or low. This takes some of the emotion out of investing and avoids any delays in putting your money to work.
Plus, by drip feeding your money into an investment over time, you invest across a range of prices. So, you effectively pay the average price over a fixed period, which can help smooth out market volatility.
REDUCE YOUR TAX BILL
You can keep hold of a bigger portion of your earnings by claiming all the tax reliefs you’re entitled to. There are lots of ways to reduce your tax bill, whether you’re an employee or self-employed, a landlord, investor or pensioner. A financial adviser can help you take advantage of the many tax relief opportunities available when it comes to your savings and investments. At home you can check you’re on the right tax code and make sure you are utilising tax-efficient perks at work such as a season ticket loan (if you’re back in the office) and for the self-employed to make sure you’re using all the deductibles you’re entitled to.
REVIEW YOUR FINANCES
A review with your adviser might be in order if your finances dramatically change as a result of rising inflation and bills.
However, if money is seriously tight and you are starting to get to the point where you’re borrowing to pay bills, it’s time to talk to a debt adviser. You don’t need to be in serious debt to ask for help – debt charities will guide those with any level of debt that cannot be paid back.
Consider charities such as National Debtline (https://www.nationaldebtline.org 0808 808 4000), StepChange Debt Charity (https://www.stepchange.org 0800 138 1111), or the Debt Advice Foundation (http://www.debtadvicefoundation.org 0800 043 40 50).