It feels as though the UK cost-of-living crisis has been with us for nearly a decade, even though we only began to feel its effects in late 2021.
In May 2023, the Bank of England (BoE) raised interest rates from 4.25% to 4.5%. This is the 12th rise since December 2021 and puts the Bank Rate at its highest level since the peak of the global financial crisis in October 2008.
Unfortunately, this strategy by the BoE to curb rising inflation now means that the average Brit faces higher mortgage payments, higher rents, and food inflation. The question on all our minds is, when will the UK cost-of-living crisis come to an end? Will food prices ever come down?
People have had to cut back on spending just to afford basic amenities such as food, water, and heating. Family budgets are stretched thin, given that lots of employers are also reluctant to increase wages in tricky times.
It doesn’t matter whether you’re a high or low-income household, this is affecting us all. The good news is, there are some mindful strategies to help you cope in these tough economic times.
Managing your finances
Making a budget is the first step towards taking control of your finances and coping with the cost-of-living crisis. A budget can help you keep track of where your money is going, cover the essential costs, and trim out any frivolous expenses.
Creating a budget is straightforward. Start by calculating your total income for the entire month. After you’ve written this down, make a list of everything you’ve spent your money on this month. Even if it’s a cup of coffee before work, add it in. Then jot down essential payments such as your:
- Mortgage
- Council tax
- Utilities such as water, electricity, and gas
- Transport
- Receipts on any purchases you’ve made
By being honest with yourself, you’ll get a clear idea of how much you’re spending. Your budget will also help you identify any frivolous purchases you’re making, show where you can cut back on these, and direct your money into your savings account, or perhaps offset your debts.
How to reduce the cost of food
It’s a nasty shock when you get to the checkout of your local supermarket, just to find that the prices of the same grocery items you bought last month have risen yet again. But despite growing concern over food poverty in the UK, you can still make some reductions.
- Buy local brands – In these tough times, you might want to take a second look at your shopping basket and switch out items you can save money on. Some of the local supermarket brands can be just as tasty as the big brand products, but cost less. Have a good look around and find which products can be an easy switch for you and your family.
- Use your loyalty points - You’ve racked up hundreds of points on your loyalty card, so why not put them to good use when you need them most? These loyalty points can save you lots in grocery shopping per month, especially if you’ve accumulated many over the years.
- Organise the fridge – Before doing this month’s grocery shopping, check the fridge first to ensure you only buy what you need. Keep things organised so that you can also use what you’ve got before it goes bad too.
Energy saving tips
While the energy price guarantee did take some sting off the huge energy prices this winter, British homes are still spending large amounts on their utility bills. Saving on water and electricity is crucial if you want to free up money, as the gas and electricity prices forecast remains high.
- Turn off any idle devices – switch off any gadgets while they’re on standby, as they can eat up significant amounts of energy. You can make it part of your morning routine to switch off all energy devices before leaving for work, or part of your evening routine to turn them off before retiring to bed.
- Make your home more energy efficient – Insulating gaps in windows, doors, and floorboards is very cheap, and can work wonders for your heating bills during cold months.
- Turn down your thermostat – even a slight reduction makes a difference.
- Shorten your showers – halving your shower time from eight minutes to four can save you £95 a year.
Loan repayments
If you’ve taken out a loan, missing a repayment can have a negative effect on your credit score and affect your finances further down the line. That’s why it’s important to meet your loan repayments on time. You can start by:
- Setting up a direct debit – monthly instalments will be automatically deducted from your account. This can help stop you forgetting to make a payment, plus most lenders will provide better terms for customers who sign up for direct debit payments.
- Consolidating your debts – If you have several loans that you’re paying for, then a debt consolidation loan can make payments more manageable. However, you should only resort to debt consolidation if the interest rate on this loan is lower than the combined interest rates on your other existing loans. It’s also important to be aware that taking credit out over a longer term will usually increase the total amount repayable.
Mortgage/rent
If you’re currently struggling with your mortgage payments because of the cost-of-living crisis, there are a few options to carefully consider.
- Extend the mortgage term – While adding years to your mortgage is not always advisable, it could help reduce your monthly payments if you’re having trouble paying them. You can then review the years with your lender once the financial situation improves.
- Arrange a short payment holiday – Applying for a short-term holiday with your lender means that you can go without making your mortgage payments, for up to three months, until your financial situation improves. Bear in mind though that your payments may increase once you resume to offset the time in which you didn’t make payments.
- Switch to interest only – If you’re paying both the capital and interest on your mortgage, you can request your lender to switch to interest payments only, which means a reduction in your monthly mortgage payments.
Insurance
Whether it’s life, pet, or car insurance, premiums can be difficult to deal with, especially during testing financial times. To manage your insurance premiums, you can start by:
- Switching to annual payments – Direct debit payments for insurance usually cost more than the lump sum annual premium. You might save a lot more money by opting for the annual payment.
- Explore your options before renewing – You may end up paying much more if you let insurance premiums like car insurance roll over every time. Instead, contact your provider and see if they offer discounts before auto-renewing, or see if there are more affordable options in the market.
Money-saving tips
Aside from financial hacks on grocery shopping and loan repayments, saving money can also help cushion you from the effects of the UK cost-of-living crisis. Let’s explore five money-saving tips you can adopt today.
- Reduce any unnecessary purchases at the supermarket – If it’s a luxury, then don’t add it to your shopping cart. Whether it’s a sweet treat or a bottle of wine, you might have to cut back on frivolous spending to save money, for now.
- Cut fuel costs and transport – You can cut transportation costs by walking instead of taking the bus for shorter distances, or removing any excess weight in your car to minimize fuel costs.
- Cancel any unnecessary subscriptions – From streaming subscriptions to fitness apps, cancel any subscriptions that you don’t use frequently. A rule of thumb is that if you use a service less than three days in a week, then you probably don’t need it.
- Search for discounts – When shopping online, you might come across several promo codes and deals that can help you save up to 20% off orders you make. You can also search for coupons that you can use at your local supermarket.
- Look into tax relief and benefits – If you’re a PAYE taxpayer, you could be entitled to tax reliefs. You may also be able to claim benefits from the government.
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