The United Kingdom is facing some of the toughest financial hardships since the 2008 recession, as a result households around the country are seeing the need to tighten their belts in order to pay essential bills.
While there are some aspects that are out of our control, learning how to budget effectively, cut costs and maximise savings can help us to get through these difficult times. Here is a brief overview of the current economic situation and look why and how you can effectively manage your money:
Economic growth has slowed and inflation is on the rise
The cost of living in the UK has been high for a while now and things are set to peak in October. Consumer prices were around 9.1% higher in May 2022 in comparison to the previous year and inflation is now at its highest in 40 years.
By autumn households should expect inflation to reach 11% as the cost of energy bills and petrol continue to rise at a fast rate. The Russian invasion of Ukraine is also driving up food prices as producers and distributors face logistical challenges.
The Bank of England has increased interest rates in response to all of these developments. Interest in December 2021 was just 0.1%, a historic low, but it is now as high as 1.25% The high interest rate isn’t great news for those making loan or mortgage repayments but is generally encouraging for savers.
This current economic climate has got people thinking about how they can manage their cash flow a little better and reduce the stress around making bill payments. Budgeting is one solution to this and has a number of benefits.
Budgeting helps you to control your spending and helps increase your self-awareness. For instance, when tracking your outgoings you might notice that you are ordering more takeaways than you realised or that your clothes shopping hauls are a little more costly than you thought.
The act of budgeting can also keep you on track to meet your goals either as an individual or as a family. Perhaps you would like to go on a luxury holiday to celebrate an anniversary, budgeting together will help you get there.
Also, budgeting can help you in the event of emergencies and unexpected costs. If you are aware of all your monthly outgoings and have a savings pot, you are more prepared for job losses or other financial hardships and have a bit of breathing space to get yourself back on track.
How to create a budget
So, how exactly do you go about creating a budget?
First, start by calculating what exactly your income is. This should take into account everything that you have coming in, including things like your wages, any government benefits, work bonuses, side hustles and child maintenance payments if applicable.
Now it’s time to look at what you are spending. Start by making a list of all your fixed costs, such as your rent, utility direct debits, car payments and loan repayments.
Then you will want to look at variable costs, which could include fuel, groceries and entertainment. If you are struggling to figure this out, work out the average by adding up six months and dividing by six to give you a rough idea.
Lastly, you will set some financial goals, put a plan in place to stick to your targets and adjust you spending. It is likely that you will want to find a way to reduce expenditure.
Finding ways to reduce expenditure
Then there are many simple things you can do to cut costs, one being switching to budget supermarket brands for staple food items. You might still have a brand of chocolate or tea bags that you will not compromise on, and that’s ok.
You can also look at how much your hobbies are costing you. For example, if you don’t find yourself going to the gym frequently anymore you could cancel your membership or look at switching to off-peak hours for a cheaper rate.
Gaming is a hobby many enjoy and gaming sites such as online casinos generally cost money to enjoy. However there are ways to make the most of your gaming budget, for example, this is a company that teaches online casino gamers how to find the best deals for their casino games.
Make your savings automatic
Furthermore, you should plan savings into your budget and your goals. Think about what short-term and long-term goals you and your household might have; perhaps a holiday next year or even upsizing your home in five years?
Some banks let you do roundups so that you don’t even notice your small change going into your savings account. For example, if you spent £4.79 on a meal deal, the £0.21 would go into your savings.
You can also look at comparison sites to find savings accounts with the best interest rates. Also, researching different options such as ISAs, stocks & shares accounts, premium bonds and others will help you to build up your savings too.