What the cost of living crisis means for your financial wellbeing and what you can do about it

Category: News

Rising UK inflation has been a major factor in the current cost of living crisis. Rising household bills and soaring costs can have a detrimental effect on your financial wellbeing, but did you know there are steps you can take to mitigate their impact?

Read on to discover how the cost of living crisis could have ramifications for your long-term financial stability and how financial planning can ensure you aren’t left out of pocket.

UK inflation is at a 40-year high

The latest figures from the Office for National Statistics (ONS) confirm that UK inflation has reached a 40-year high of 9.4%. Essentially this means that goods and services that cost £100 a year ago cost £109.40 today.

The Bank of England predicts that inflation could rise as high as 11% this year.

Rising inflation is already affecting financial wellbeing.

Three-quarters of UK adults are worried about the rising cost of living

The ONS has found that around three in four (77%) of UK adults are “somewhat” or “very worried” about soaring living costs.

Of those feeling concerned, women were more likely to report being anxious about living costs than men. Indeed, 81% of women who responded to the survey were feeling very or somewhat worried, while 73% of men felt the same.

Parents are another group worried about rising inflation. The ONS found that 90% of parents with children aged 0 to 4 were somewhat or very worried about living costs.

Many demographics are feeling the pinch currently, and it’s influencing our financial habits.

The above ONS report shows that, of those that stated they were feeling worried about the cost of living crisis, 68% are already spending less on non-essential goods and services.

A further ONS report on economic activity and social change in the UK outlines exactly how people are responding.

It shows that UK credit and debit card purchases decreased by 6% in May 2022, while dinner reservations through OpenTable dropped by 10%.

3 simple ways to mitigate the effects of rising living costs on your financial wellbeing

With inflation high, and set to rise higher, there are simple ways in which a financial planner can help you to navigate the present rocky waters and stay on track for your dream future.

1. Budgeting and planning can give peace of mind

If you are looking for ways to cope with rising living costs, you shouldn’t underestimate the power of clever budgeting.

First, identify your “wants”, “needs”, and “savings”.

  • Needs are things like food and other essential purchases
  • Savings should include debt repayments as well as savings
  • Wants are any other non-essential purchases.

One way to manage your household budget is by using the “50/30/20” rule. According to this rule, you should spend 50% of your monthly income on needs – the financial obligations you must meet.

The other half of your monthly income is then split. Spend 20% on savings and other essential debt repayments, looking after your future self. Only, then, when everything is taken care of, should you spend the remaining 30% on wants.

Using this budgeting model means that you pay for essentials now, save toward your future financial stability, and still leave some disposable income, even if the cost of living continues to rise.

2. Cashflow modelling can help visualise your financial future

A more complex way to look at your present and future finances is through cashflow modelling.

A cashflow model considers your monthly income and outgoings as well as other factors like your assets or current debt.

At Lloyd O’Sullivan, we can take your financial goals into account and create a long-term projection, identifying any potential shortfalls or surplus, and helping you to adjust your current financial habits accordingly.

The model can also consider factors like rising inflation, stock market volatility, or changes in personal circumstances that could alter your long-term plans.

Seeing your financial future in black and white can be genuinely transformative. It gives you a sense of control over your future and confidence that you are on track to meet your goals – even if there are bumps along the way.

3. Taking a holistic approach can give you peace of mind

Global factors could be causing you to worry currently. Soaring living costs, the war in Ukraine, and energy bills set to rise further in the autumn could all be weighing on your mind.

We can help you to take a holistic look at your finances, helping you to take a step back. It could provide you with valuable peace of mind.

A holistic approach allows you to understand how the financial decisions you make affect other areas of your life.

This overview can help you adapt to tough financial situations and give you back control over the financial decisions you make.

Get in touch

At Lloyd O’Sullivan, we can talk you through your finances, giving you the peace of mind that you’re on track to meet your goals, regardless of current financial uncertainty.

To find out how we can help you manage your finances amid the cost of living crisis, email info@lloydosullivan.co.uk or call 020 8941 9779.