Keeping Above Water in the Cost of Living Crisis

Right now, we’re experiencing some of the highest levels of inflation in history. The government has declared a cost of living crisis, due to the fall in ‘real’ disposable incomes (that is, adjusted for inflation and after taxes and benefits) that huge numbers of people in the UK have experienced since late 2021.

Unfortunately, over the course of the past year, extremely high inflation has begun to outstrip any wage and benefit increases that we have benefited from. This has all been further exacerbated by recent tax increases. In short, people’s wages aren’t going as far as they used to, meaning that many people are having to cut back and – even worse – many people’s wages arent’ sufficient to provide themselves and their dependents with the basic essentials.

Areas that have seen huge increases in price include essentials such as housing, fuel, energy, food and more. Of course, many of us are now seeking to find ways to cover our essentials and provide ourselves with a comfortable quality of life in spite of the current adversity. But where can you start? Here are a few ways that you can keep yourself above water during these trying times.

Create a Budget

First and foremost, you need to create a new budget. This is something that you should do each time your income changes or your outgoings change. Unfortunately, most of us will have seen at least our outgoings significantly change over the past year. To create a budget, you simply need to note down your total take-home pay. This means the amount you actually get in your bank account after tax and NI deductions. Next, you should note down all of your outgoings.

This should include everything that you need to pay each month, including rent or mortgage payments, energy bills, water, fuel bills, bills associated with your car and more. Now, deduct the bills from your take-home pay. The amount you’re left with is your disposable income. This is how much you can freely spend without digging yourself into debt.

There are many different approaches that you can take to stick to your budget and avoid trouble. Many people choose to leave their bill money in a dedicated bank account that all of their direct debits are set up to. This ensures that you always have the money to pay your bills available. They will then have their disposable income in a separate account. This makes tracking disposable spending easier.

Look Into Debt Management

Don’t make the mistake of trying to ignore your debts right now. Not only will they not simply disappear, but interest has also reached a significant high, meaning that the amount you owe will simply keep increasing if you leave your debt for long. Instead, you need to come up with a reasonable and sensible debt management plan.

This starts with determining how much debt you actually have, where it is and how much interest you’re paying on it. Take time to look at each of your accounts – whether that’s a credit card, a loan or finance agreement. Note each down, with its interest rate. Some will have to stay as they are, such as car finance agreements, as these can’t be switched from one company’s hands to another. However, you can switch things like credit card balances around. Take some time to see your individual offers. See whether any companies are offering you interest-free balance transfers. Check the fees involved and determine whether switching your credit card debt to an interest-free period will give you sufficient time to chip away at the debt.

Generally speaking, a lower interest rate is almost always a better option. You may also want to consider debt consolidation loans. Look for loans with a low-interest rate, take it out, use the money to clear all of your individual debts and you’ll be left with the same amount of debt, but in one, easily manageable space and – hopefully – with a lower-interest rate attached. This can reduce missed payments, which come with fees and fines and also damage your credit score.

Seek Financial Advice

If you are wondering how best to manage your money, whether that’s managing debt or simply seeking information on how to put your disposable income into the best savings and investments to build your money, you should seek financial advice.

There are plenty of services out there, so take some time to browse the market and find the right service for you. Some are generalised and will be able to answer any questions, such as financialadvisers.co.uk, while some will be more niche and able to help with very specific situations and scenarios.

It’s also recommended that you seek the help of an accountant if you are self-employed, as they will be able to help you file your tax returns correctly, making the right payments at the right time. They will also know the ins and outs of the tax system and can help you to pay the right amount, rather than contributing to taxes that you don’t need to.

Generate Extra Income

Some of us will, unfortunately, find that our outgoings begin to outstrip our income. This is when trouble can really begin to occur, as you’ll inevitably begin to dig yourself into more debt on a monthly basis, as bills become due and direct debits are taken. This is when you will really need to turn your mind to generating extra income.

While it’s important to avoid overworking yourself and experiencing burnout, there are a few ways to generate extra income that you may find to suit you and your individual needs. First, you may want to ask your current workplace for a pay rise. You never know how this will go. Your company may not be able to, or you may find that they would rather give you a pay rise than having to fork out the costs of recruiting someone to replace you. You could also apply for other positions in different companies that are offering higher levels of pay.

Another option that you could have if your workplace offers it, is requesting overtime. Working some extra hours or shifts could boost your pay packet at the end of each month, helping you to keep up with rising costs. A third option is to consider some additional freelance, self employed work on the side. Many people are now opting into side hustles that allow them to generate some extra cash from sources outside of their main workplace.

If you have a skill that you can sell, such as copywriting, graphic design, product photography and more, you may find that you are able to generate income from some clients. Just make sure that you register as self-employed, put your tax and NI contributions aside from each paycheck and pay your tax properly at the end of the year through a self-assessment.

Use Support Services

There are more and more support services out there to help those who are experiencing financial hardship during these times. It’s important to make use of these if you need them. Food banks are a good example.

Food banks offer free food to anyone in need. You don’t necessarily have to be homeless. Instead, they are just supplies that have been donated for those who are struggling financially and need a little support right now. It’s important that you don’t put your pride above providing for yourself or those who depend on you.

More lenders and companies are also building teams to discuss people’s payment plans if they are struggling. Many companies will reduce payments, offer grants, lower interest or take other positive actions to support you if you can show that you are struggling to meet the payments that they are requesting of you.

Practice Self Care

Times are hard and many of us will struggle financially. However, it’s important to do what you can to maintain a positive attitude and mindset. It can be really easy to begin to feel beaten down and low. But remaining productive and positive is what will help you best make your way out of this situation. Remember that you are not alone.

If you begin to feel down or struggle, try reaching out to support groups, helplines and more. Make time to enjoy yourself and see family and friends. All activities don’t have to be costly. Walks in nature, checking in with a loved one for a cup of tea and more can be low-cost or free. Do what you can to lift your spirits!

Of course, none of this is ideal. Times shouldn’t be so hard and many people are really struggling right now. But hopefully, some of the information and options outlined above should help you through any hardship you may be experiencing, lightening the load and giving you space to get back on top of your finances.