Personal Finances- lessons learnt- what we could or shouldn’t do in the current financial climate

Personal finances are being pushed to breaking point because of the increased cost of living and inflation rate, which has increased throughout 2022. However, during the COVID-19 pandemic, households saved a substantial amount, reaching a record level of 23.9%. The significant increase in household savings corresponded with the government enforcing limitations on social interactions and financial activities, which resulted in more savings.

In contrast, in 2022, the saving rate has decreased as people’s ability to save has been impacted by higher living costs. The UK is feeling the sting because of living cost increases for food, energy, and other essentials. The economy being halted during the pandemic through numerous periods in 2020 and 2021 has contributed to some of the financial constraints that are being faced.

Furthermore, the money debt advice service conducted research that found that a quarter of adults in the UK had savings with a value of less than £100, which puts them at increased exposure to rising cost vulnerabilities.

In 2021, the number of UK households struggling with substantial debts rose by a third, before the winter increase in energy prices and the removal of the additional £20 in universal credit payments, according to research.

The Jubilee Debt Campaign analysed research conducted by the Bank of England and found that nearly 10% of households revealed that loan and interest repayments were a substantial burden, a 35% rise compared to a year before.

Households also stated that their typical monthly repayments amounted to a record £373 in 2021, an increase of 22% compared to the previous year and the most significant figure for at least a decade.

What should you do in the current financial climate?

1. Set up a budget

The first step of managing your finances is a budget; although it can be a little time- consuming, it is a worthwhile investment of your time so that you can get a better picture of your finances.

Setting up a budget can decrease the likelihood of ending up in debt and increase the chances of being more prepared for unexpected expenses, improving the probability of a good credit score and being approved for a mortgage or loan. You will also be able to see where you can save money and be more likely to save for holidays and a mortgage on a home.

What will be needed?

Before starting a budget plan, you will need to calculate the amount you spend on household bills, other living costs, financial products such as insurance, bank charges or interest, and any money spent on family and friends such as lending money or purchase of gifts or travelling to events such as hen trips, forms of transport such as car expenses such as fuel tests, leisure, including gym membership, hobbies, cinema and other entertainment.

2. Set money aside for savings

Once you have set up your budget, make room for saving by setting up automatic direct transfers from your current account to your savings account every month. Even if you would like to save for a specific goal, it is still worth having an emergency saving pot, especially in the current financial climate where the cost of living is causing many people to be at their wit’s end.

My Name is Anjali Kashyap, and I am a Digital Marketer.