What shall I cut?09 June 2022
Pinch means to press something. And for most the dramatic rise in inflation over the beginning months of 2022 has been, well dramatic. And it doesn't seem to matter what purchase you have in mind, the price has jumped, or the retailers have replaced a product with an alternative…that is more expensive. And from what is known, the journey of inflation, and Bank of England base rate hikes is only at its start, rather than at its end.
Many global economists believe that the increases in inflation will be shorter lived than in the past. If this is a pointer, inflation in the US reduced slightly last month, but still above 8.00! The Bank of England think that the peak of inflation will be the end of this year in the UK, falling away over 2023. Time will tell if this is true, and many who thought that inflation would fall as fast as it rose and now indications that it may be more stubborn than first anticipated. No one knows; therefore, budgeting sooner rather than later might be a prudent measure for many households and businesses.
So, what to cut, indeed, how to make cost cuts? Perhaps a straightforward income and expenditure calculation to start with might be sensible, adding in an uplift in costs for food and clothes, along with any transport costs of say 10%, and an increase of 50% or so for fuel costs as an estimate. On this latter point, don't forget there might be another rate hike when Ofgem move their rate cap limit, planned for October 2022. Also, check your payslip to see the National Insurance rate increase being deducted at an additional 1.25% as you read your May net pay. Remember there should be a little bit of respite from this increase from July onwards.
If you look at your static monthly costs, the ones that you know will go out on the 01st of every month to keep the wheels of your life going, can they be re-arranged to save costs, or just to get better value. Things like mobile connectivity, or mortgage costs, or household and car insurance to get a better rate. Have a shop around to compare and see if any real savings can be made. We can refer you to an independent mortgage adviser if you need the latest market offers available.
Be careful with protection policies, such as life cover. If you have a family that rely on you and you died, the fear of cost increases will be nothing to them in comparison to not having a regular income to keep their life's wheels turning. We can review your existing protection plans with you to see if value is being offered, if alternatives can be arranged. Whatever you do, do not cancel existing plans and covers without checking.
Please do take stock now and review your personal finances to see if savings can be made effectively. Take one action that might save you some cash to help later in the year when the pinch will really be felt. Talk to the team at Chapters Financial in Guildford if you need any help with your money planning.
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899