How to navigate the rising cost of living

Soaring prices for food, fuel and energy mean it’s more important than ever to take control of your finances and ensure you have a solid financial plan in place. While this may be an anxious time, there are several ways you could help your money work harder and, in doing so, feel more confident about your long-term financial security. 

A financial adviser can help you decide what’s right for your individual circumstances, but the following steps are a good place to start.

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1. Check where your money is going

One of the best ways to feel in control of your money is to make sure you know exactly where it’s going each month. Make a list of all your monthly outgoings, including your mortgage, bills, TV and magazine subscriptions, gym memberships and school/nursery fees, plus any regular savings, investments and personal pension contributions. Add these together and compare the overall amount with your take-home pay. 

It might seem like an arduous task, but once you’ve done the initial legwork, it’s easy to maintain and it will give you a much clearer picture of your financial position. You might spot ways to save money – for example, cancelling unused subscriptions – or realise you could be investing more for your longer-term goals.

2. Look for better deals on long-term contracts

If your long-term contracts are coming to an end, check whether you could switch to a better deal. Compare TV, phone, broadband and car insurance deals online. If you’re happy with your existing provider, let them know that you’ve found a better deal – they’ll often match or beat it. 

If you’re on a fixed-rate mortgage, you’ll most likely roll onto your lender’s standard variable rate when your deal ends. This could be significantly higher than your existing rate, meaning the overall cost of your repayments will rise. Unless you’re planning to remortgage or pay off your mortgage early, you’ll usually be better off getting a new deal. An adviser can help you shop around for the best rate and advise on the right type of mortgage for you.

3. Review your financial protection

If you have life insurance, critical illness cover or income protection, make sure it’s still suitable for your needs and that you have the right amount of cover in place. Check your employee benefits to ensure you aren’t doubling up on cover. And if you’ve adopted a healthier lifestyle, such as quitting smoking or reducing your alcohol intake, find out whether you could be eligible for lower premiums. Beware that lower premiums could indicate a less comprehensive policy, so ensure you seek advice before switching.

4. Beware expensive debt

If you’re struggling to maintain your current level of expenditure, it may be the case that you need to reduce your regular savings and investments, at least until your finances feel less squeezed. Resist the temptation to resort to loans or overdrafts. The interest rates on debt tend to be far higher than the returns you can expect from savings accounts or the stock market, so you’d likely end up in a worse financial position by prioritising savings over debt. Ultimately, debt can harm your financial security and result in you falling short of your goals.

5. Make your money work harder

On the flipside, if you are debt free and managing your monthly expenditure well, it’s worth checking whether your money could be working harder. You should keep around six months’ worth of essential expenditure in an easy-access savings account to pay for unexpected bills and emergencies. Beyond this, rising prices mean that excess cash could be losing its ‘real’ value as inflation erodes its purchasing power. This is because the interest rates on cash are currently very low. As of 6 April 2022, the highest rate on an easy-access account was 1.5%, and the highest rate on a five-year fixed-rate account was 2.4%¹.

Investing at least some of your savings in the stock market could help to mitigate the impact of inflation, while offering the opportunity for greater long-term growth. Although the stock market is volatile, history shows that over periods of ten or more years it tends to perform more strongly than cash and above the rate of inflation. A financial adviser can help you decide how much money to invest and where to invest it.

6. Make the most of tax allowances

Another way to make your money work harder is to ensure you’re saving and investing tax efficiently. ISAs enable you to invest up to £20,000 a year without paying income tax or capital gains tax. Pensions offer tax relief at your marginal rate of income tax, which means a £100 personal pension contribution costs just £80 for a basic-rate taxpayer or £60 for a higher-rate taxpayer. Making pension contributions could also lower your ‘adjusted net income’, potentially moving you into a lower tax band. This can be complicated, so make sure you seek professional advice.

7. Consider combining your pensions

If you’ve accumulated several workplace pensions throughout your career, you might want to consider combining them into one pot. Pensions from many years ago may have outdated and uncompetitive charging structures. Fees eat into your investment returns and may ultimately reduce how much money you have at retirement. Consolidating your pensions could therefore help you save on charges, while also making it easier to keep track of your long-term finances. Pension consolidation does come with some potential drawbacks, so it’s important to ask a financial adviser whether it’s right for you.

Next steps

In uncertain times, it can be difficult to make calm and rational decisions about money – and that’s where financial advice comes in. An adviser can help you take control of your finances, so that you feel confident you’re on track for a secure financial future. For smart advice that’s tailored to you, speak to one of our financial advisers today.

¹ https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/

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The value of investments, and any income from them, can fall and you may get back less than you invested. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.