Inflation jumped to a new 40-year high of 9.1% in the 12 months to May, causing more misery for people already struggling to cover rising living costs.
Record petrol and diesel prices, soaring food bills and steep energy costs all contributed to the increase in the inflation rate, with the Bank of England predicting it could reach as high as 11% in the autumn.
With the worst probably yet to come, it’s essential for us all to try to shore up our finances and work out a budget, so that we can ideally free up a bit of extra cash to save for emergencies. Currently, only around one in three of us (38%) actually keep a budget and know what we spend each month, according to research by financial wellbeing and retirement specialist WEALTH at work.
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Jonathan Watts-Lay, director at WEALTH at work, said; “The first thing to do if you are concerned about money is to work out exactly what you have coming in and going out each month. Whilst many people seem to know how much they spend on their bills, in reality not all of them keep an accurate budget showing what is coming in and going out each month. There are many budgeting tools available online to help with this such as MoneyHelper’s budget planner.”
It’s a good idea to start by make a list of essential spending, such as utility bills, rent or your mortgage, Council Tax and also a list of discretionary spending, which are costs that you could cut out if necessary.
Alice Haine, Personal Finance Analyst at Bestinvest, the DIY investment platform and coaching service, said: "With prices heading ever higher, slashing budgets now to reduce spending is vital for those that want to ride out the year with their bank balance still in the black, as runaway inflation means your salary simply does not stretch as far.
“Making stringent cutbacks on everyday spending and minimising luxuries such as eating out, holidays and clothes shopping will all help but for some households already nearing breaking point, starker choices will have to be made. These could include more drastic cuts such as going down to one car or even considering moving to a smaller property to reduce mortgage or rental payments.”
Even making a few minor changes could help boost your finances. For example, research by comparethemarket.com found that nearly one in two households (49%) are currently spending money on unused subscriptions, wasting on average £14 a month, the equivalent of almost £170 a year.
Alex Hasty, director at comparethemarket.com said: “You can get a subscription for just about anything now, with many people having signed up during lockdown seeking access to new forms of entertainment. However, at a time when household finances are being squeezed significantly, our research shows that people are now wasting hundreds of pounds a year on services they’re not using regularly or by having multiple accounts amongst family and friends unnecessarily.”
Build a savings buffer
Once you’ve identified any costs you might be able to reduce, you should then divert these savings into an easy access account, so that you have some cash readily available in the event of emergencies.
If you find it difficult to save or are worried that some months you won’t be able to afford to put much away, there are several money management apps, such as Chip, Plum and Moneybox, which can help you get into the savings habit.
For example, with the Moneybox app, you can set up a savings account via your mobile, link your bank account to it and start saving with just £1. You can then contribute money as and when you can via any combination of one-off and weekly deposits, as well as making ‘round ups’. These involve your everyday purchases being rounded up to the nearest pound so you can set aside this spare change into your savings account.
Chantelle Perkins, senior financial wellbeing consultant at HSBC, said: “Adding to an emergency fund is a key part of building financial resilience. While we know this is not always possible, we would encourage savers to put aside enough to cover their monthly outgoings for between three and six months, so that they have a buffer should their circumstances change.”