How to Manage Your Income in Light of the Rising Cost of Living

The UK has been hit hard by the cost of living increases, from the cost of the weekly food shop to energy prices and the cost of buying a property becoming inaccessible to so many. 

Freelancers, small business owners and the self-employed are used to being cautious about their finances, setting aside money for the inevitable tax bills and being aware that a one-off contract might not be renewed. In times like this, while it’s good practice to question whether you’re making the best use of your funds, should you be putting greater effort and time into managing your investments and tracking your income? 

The reality is that however difficult times are now, you still need to ensure you have money aside for later in life. Here’s how to successfully manage your wealth in light of the rising cost of living. 

Keep emergency savings in place (if you can)

Sometimes, emergencies can’t be helped and you need to dip into the money you have set aside for such occasions. But while it may seem like everything is very overwhelming right now, try to save whatever you can so that if you’re hit with a genuine emergency in the future, you still have some money to help you out. 

The sweet spot is between 3 to 6 months’ worth of your monthly expenses in a rainy day fund, but even just having £1,000 in a savings account can make all the difference. Make room in your budget for your savings as one of your monthly outgoings, so you remain consistent. Even if it’s just £10 a month, it’s money that can really help when an emergency strikes. The savings team at NatWest agree, stating that making payments to your savings “when you are paid, and taking the approach of saving little and often, means it all adds up quickly, resulting in less worry and more confidence for whatever the future holds”. 

Think twice before touching your pension

Seeing the value of your pension (if you have one) take a tumble can be hard, but it’s important to remember that your pension and other investments are for the long-term, so you need to remain calm when the market is fluctuating. “Taking cash out of your pension comes with risks. There’s the risk that you could outlive your money, or that the value of your pension could go down. So, you need to make sure that you understand all of these risks before you make a decision”, explains one leading financial advisor. 

Your investments are bound to rise and fall, and while things look bleak right now, there’s no way of knowing what the future holds. In taking action when things are down, you’re accepting your losses without waiting to see if things improve. Before you take any drastic action, speak to a professional and make sure you’re acting with a clear head and an objective view. 

Check if you’re eligible for financial assistance

There have been several support packages provided by the UK Government and individual businesses to help the millions of people in the UK who are struggling to meet the current cost of living. From the £400 given to all households towards energy bills, starting from this October, to means-tested benefits receivers getting £650, and extra help for people with disabilities or on a pension, there are ways to ease the financial struggle a little bit. Finding out what you’re entitled to can really help you if you’re struggling financially or setting yourself up as self-employed. Look out for up-to-date government grants that can prevent the need to dip into savings and investments if you’re worried. 

Get a better deal on your mortgage

As many will know, the base rates have been increased by the Bank of England several times in just the last few months alone, and that has had a direct impact on mortgage rates. If you’re on a variable rate at the moment, that can have a huge effect on your monthly outgoings, so you may want to consider changing your mortgage provider to get a better deal or moving onto a fixed rate with your existing provider if possible. A broker may be able to help save you money on your monthly mortgage payments and provide you with some peace of mind. Just be careful that you’re not hit by additional charges in the process. 

Review your financial protection and outgoings

If you have any form of financial protection, whether that’s life insurance, income protection or critical illness cover, you need to review your policies now to make sure they are still suitable for your needs. You want to be absolutely sure you have sufficient cover in place and double check you’re not overpaying. You may find that your premiums have decreased if you’ve recently adopted a healthier lifestyle, such as quitting smoking or reducing your alcohol consumption. Likewise, if you’re paying for an independent accountant, could you manage without them or reduce your outgoing payments by trimming down the services they supply.

Get smart with what you have

Make sure you’re smart with the money you have available to you, such as paying less tax on your savings by putting your money into an ISA, for example, or paying into a pension plan rather than a regular savings account. These can help your money to go further and offer further protection if the UK economy continues to decline, which is all anyone wants right now for that added security. 

Remember that your investments and savings are long-term and the value can go up just as easily as down, so it’s important to seek professional advice when you’re handling money so as to not make the wrong decision. Tax rules can change depending on your own individual circumstances, so doing your due diligence and researching the right option for your finances can really help your money to go further. 

The cost of living crisis sadly means that millions of people are finding themselves struggling right now. But it’s important not to make any drastic decisions just because times are difficult. Always seek professional advice when you’re managing your money and do plenty of your own research so you can be confident that you’re making sound financial decisions for your future. 

This is a collaborative post.

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