How to Manage Personal Finances to Tackle Rising Inflation

The impact of rising inflation, which hit 5.4 per cent in the 12 months to December 2021, has been felt on a global scale. From fuel and groceries to utility bills and large purchases, there is little, if anything, that is not costing us all a whole lot more than it was a year ago.

The Bank of England today announced a rise in the base interest rate from 0.5 per cent to 0.75 per cent, meaning that rates are now at their highest level since March 2020 when the first Covid lockdowns began. The Bank has warned that inflation may reach 8 per cent in the coming months, and possibly even more. And this is why it has taken the step to increase the interest rate, with a view to driving down spending, and balancing inflation.

There is a general view that interest rate rises are ‘bad news for borrowers and good news for savers’, but there is a lot more to the current situation and rising inflation than that.

With this in mind, it’s a crucial time to start looking at how to manage personal finance to get you through the coming months whilst the Bank of England works on its strategy to drive down inflation and soaring costs begin to balance out.

1. Think about investing, or diversify existing investments

Depending on your individual situation, investing could be of help in the fight against rising inflation. However, choosing assets wisely is vital, which is why taking professional investment advice is essential.

A diverse portfolio is wise. For example, investing in equities as well as bonds and property can often work well, as you will have assets that continue to perform even when the market is volatile.

It is important to bear in mind though that the value of investments, and the income you receive from them, can drop as well as increase, and that there is always the risk that your original investment won’t pay you back. It is therefore vital that you hold onto sufficient instant-access cash for any short term requirements.

2. Cut regular expenditure

Now is a good time to check whether you are getting the best possible deals on your regular household expenses. If you haven’t reviewed your contracts recently, make some time to do so.

Telephone, broadband, television, insurances and other services like these will all have risen in cost over the years, but have you tried to negotiate a better deal? Often, just asking or challenging a rise could net you savings. Otherwise, try alternative suppliers.

In regard to energy, the advice currently being shared is to stay put and wait for the next energy price cap to be announced in April.

It is also good practice when looking to combat the effects of rising inflation to check any subscriptions that are automatically charged to credit cards. Maybe you have forgotten about something that is costing you every month, but that you don’t use or need? A trial subscription that you forgot to cancel, maybe?

Finally, look at your weekly grocery shop and think about how you can make savings. Swapping brands for supermarket’s own could reduce your outgoings, for example.

3. Check your pension

With the earnings element of the state pension triple lock scrapped, those relying on this income will find that they are vulnerable to rising inflation until things return to normal next year.

For other pensions, it may be worth considering an annuity with built-in inflation protection, so that you start off on a lower income than you would if you opted for a level annuity, but over time your income will increase in line with inflation.

If you are taking your income through a drawdown arrangement, then be careful not to take too much. Taking just the natural income from your investments will normally stand you in better stead to beat rising inflation, as your investments should grow over time, which means the income you are able to take will grow with it. However, as with any investment, there is always the chance that the income will drop, so be sure to keep an emergency cash fund to hand.

Again, circumstances differ, as do pensions, so it is vital to take personalised advice from a regulated and independent retirement planning specialist.

4. Fix your mortgage

If you are on a variable rate mortgage, any increase in the Bank of England base rate is going to affect you. So, if you have no early repayment charge, it could be worth looking at whether you can switch to a lower rate deal, and lock in so that you don’t end up paying more each month every time the interest rate increases.

Looking for tailored financial advice to help combat rising inflation?

Here at Partridge Muir & Warren, we have an in-house team of tax advisers, financial planners, investment managers, pension and retirement planners and legal specialists, all ready to provide you with the tailored guidance you need to help you deal with rising inflation.

To learn more about how we can assist you, please get in touch.