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Managing your money through increased cost of living

financial planning
financial wellbeing
5 min
Mature woman looking at laptop and papers

As a nation, we’ve all been hit by the cost-of-living increases. With the rise of inflation and interest rates, as well as the cost of goods and services increasing, it’s not easy to know what to do with your money. In this article, I’ll be sharing how you can cut costs, lessen the impact of inflation, manage your investments, find a new mortgage deal and more.

Please note this article does not constitute financial advice.

How can I save on my rising expenses?

To combat the spike in energy prices, the government has announced a £400 rebate for all households with a domestic electricity meter. If you pay by direct debit or credit, you’ll get the money credited straight to your energy account. Payments started in October and will continue for a six-month period – so keep an eye out for that money to hit your account.

Even if you aren't eligible for the rebate, you will be eligible for the recent Energy Price Guarantee. Through this scheme, the government are paying the excess on changing energy prices, meaning what you pay will be capped. It kicked in on the 1st October, and is now set to run until April 2023, rather than October 2024 as originally announced. Again, you don't need to do anything.

In tandem with the Energy Price Guarantee is the Energy Bill Relief Scheme for business owners. If this applies to you, you'll get a discount on your business' energy rates for the next six months (from the 1st October 2022).

But what about other bills? Unfortunately, many providers aren’t doing much to help customers save on their payments as we head into the colder months. If you want to take matters into your own hands, now is a good time to review your finances.

If you don’t know where to start, it can help to divide your expenses into ‘essential’ and ‘non-essential’. What this looks like will depend on your financial circumstances and lifestyle, but it’s a good indication of where you can cut costs.

If you’re really stretched at the moment, you might consider your insurance or protection plans as a non-essential, but you should think about the protection they provide. You might save money in the short-term without the monthly premiums, but what if you need to make a claim and don’t have the cover?

For example, if you’re unable to work due to an injury or long-term illness, would you be able to afford your living costs without your regular income?

It pays to be protected, and there are ways you can save on insurances without forgoing cover. For example, if you’re a Wesleyan member, you can get a 20% discount on a range of insurance products.

Where should I be putting my money? 

In the current climate, it pays to be savvy about where you keep your money.

A common way to save is by putting your cash in an easy-access savings account. This is useful for a rainy-day fund as you can take out your cash as and when you need it, but it’s not always the best place to hold your money in the long term.

Inflation currently sits at 10.7%*, so while interest has increased slightly of late, it simply can’t keep pace - meaning the purchasing power of your money will go down the longer you keep your cash in savings.

To see how inflation could be impacting your cash savings, try our inflation calculator.

* Correct as of 15/12/22

Should I save or invest?

If inflation is eating away at your savings, you might want to find an alternative for your money. One of your options is to invest your cash in a Stocks and Shares ISA.

Investing offers no guarantees, and there's plenty of market volatility at the moment - but over the longer term, it can present an opportunity to make your money work harder.

You could grow your money through capital appreciation (where the value of your investment increases) or through dividends (a regular sum of money you receive from investing in shares).

You might want to consider investing if you:

  • have cash in excess of the yearly ISA allowance
  • have built up a sufficient emergency fund
  • have a long-term savings objective, like paying for your child’s wedding or funding your grandchildren’s education
  • want to save for your retirement

Whether investing is right for you will depend on your appetite for risk, as there’s always the chance you’ll get back less than what you put in.

If you do decide to go ahead, you should commit to investing for five years or more to get the best possible return on your investment. To see how you could grow your money through investments, try our investment calculator.

Remember, the value of investments and any income can go down as well as up and you may get back less than you invest.

Should I continue investing when the market is low?

If you’re already an investor and you’re worried about the volatility of the market at the moment, you may be wondering about whether to stay invested or withdraw.

It can be unnerving to see the value of your investments dip, especially when you can’t predict when the market will recover. You might be wondering if you should continue adding to your investments or whether you should stop investing completely.

If your circumstances have changed and you think you’ll need to make use of the cash you’ve invested, then withdrawing your investments might be the right option for you. However, if your objective hasn’t changed and you have savings for emergencies, then you could benefit from staying invested.

Remember that the stock market can be turbulent, and it often rises and falls depending on the financial climate, but generally speaking, investments should be seen as long-term commitments. History shows that markets have a habit of bouncing back after turbulent periods. Following other sharp ‘shocks’ to the market (like the 2008-09 recession), the subsequent recoveries have gone on to outweigh the losses over the long term.

If you’re not currently paying into your investments on a regular basis, you may be missing out on the benefits of pound cost averaging. This is where you drip-feed your money into an investment instead of investing in a single lump sum.

Because your money buys shares or fund units at a variety of different prices across the term of your investment, you ultimately end up with an average purchase price - hence the term pound cost averaging.

It could reduce your exposure to falling markets as it means more assets are purchased when prices are low, and fewer are purchased when prices are high.

If you still have questions around the current economic climate and what it means for your investments, you can get answers from our Director of Investments, Martin Lawrence.

Will rising interest rates affect my mortgage?

Mortgages are another talking point at the moment with the Bank of England base interest rate currently sitting at 3.5%*. For homeowners, this likely means higher interest rates on mortgages.

* Correct as of 15/12/22

If you have a variable-rate mortgage, you’ll likely see an immediate spike in what you pay. But if you have a fixed-rate mortgage, you won’t see a change until you reach the end of your term.

So, what can you do? If you’re on a variable rate, then you might find a better deal switching to a fixed rate. This will also protect you from any future interest rate rises, which could be on the horizon.

If your fixed term is ending soon you might want to look for a new deal as early as possible. As interest rates may continue to rise, you could get a better deal now than if you wait for your term to end. Mortgage offers are typically valid for a number of months, so finding a rate now may guard you against potential higher rates in the future.

If you’d like to find out what’s available to you, Wesleyan Financial Services can find you mortgage deals that you won’t see on the high street.

Your mortgage is secured on your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

About the author
Jonathan Halberda
Jonathan Halberda

Specialist Financial Adviser at Wesleyan Financial Services

Jonathan provides specialist financial advice for hospital doctors, their families and private businesses in the Birmingham region. He’s worked in financial services since 2004 and has been with Wesleyan since 2010. He is a Chartered Financial Planner and has extensive knowledge of retirement planning for medical professionals, the NHS Pension along with inheritance tax planning and portfolio investments.

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