Financial Intelligence – Coping With The Rising Cost Of Living- The pressure of spiraling living costs is a major concern among many households. Events across Nigeria and the world have created a perfect storm that is increasing the cost of living. Everyone will feel the pinch but most especially those on a lower income.
An unfortunate conflation of different events means that it’s very likely that you’ll face an increase to your cost of living during the 2022/23 year. Majorly but not limited to:
- Rise in inflation
- The increasing cost of oil which in turn will push the price of petrol
Everyday items such as groceries and fuel alongside inflated interest rates are the biggest worry as in many cases it feels impossible to cut-back. For this reason, we need to find other ways to carry costs and keep life as normal as possible without additional financial stress.
Here are 5 fairly easy, practical and straightforward ways to manage your finances to help you cope with the rising cost of living. Even if you can implement one or two, it will bring a welcome relief to your possibly strained finances.
- Know your finances
A good first step to help you manage your day-to-day finances is to know exactly how much you’re spending, and what on. Once you know what you’re spending, it’s easier to make plans to reduce your expense.
Find out where your money’s going and being spent. It sounds obvious, but we may not realize exactly how much we’re spending each month – and what we’re spending it on – until it’s laid out in front of us. Having a clear picture of your finances will help you understand how much money you have to work with each month.
Set up a simple spreadsheet that outlines your regular non-discretionary outgoings. The easiest way to do this is to list your monthly direct debits and standing orders.
Review your last three bank statements and spend some time going through them, highlighting any areas where you think you’re spending money unnecessarily or spending too much. This could be on anything from a top of the range broadband package that you don’t need, to a mobile phone contract where you’re paying for data you don’t use.
Take a few minutes and cancel any subscriptions you don’t really use to save yourself a bit of cash. Cancelling direct debits you no longer need is one of the quickest ways of saving money and you’ll see the benefit within the space of a month.
- Make a budget
A budget is a list of all the money you receive and all the things you spend money on every month. Making a budget is the first step towards taking control of your finances and getting your situation back on track. Budgeting helps you to see where your money is going, so it’s easier to make sure that you’ve covered all of the things you need to pay for. Making a budget is a great way to spot areas where you can make savings. As most of your household bills and debt payments are made monthly, we suggest that you change all the figures in your budget to monthly amounts. Add together all the income you get each month. Make sure you include everything, whether its wages, benefits or pensions.
Make a list of everything you spend each month, start with your most important bills, such as your mortgage, rent, council tax and utilities like gas, electricity and water. These are classed as priorities, because they have the most severe consequences if your payment is late or if you miss a payment. Find out more about what bills to pay first. Next, write down what you usually spend on living costs such as food, clothing and toiletries. Shopping receipts can help you work out what you typically spend on these items each month. If you’re not sure what you’re spending your money on, try writing down everything you buy over a month. This will give you a clearer idea of your regular spending.
Deduct the total amount you spend each month from your monthly income. If you’ve got any money left over after you’ve paid for everything you have a ‘budget surplus’. If you’re spending more money than you’ve got coming in you have a ‘budget deficit’.
Whether you’re already worried about missing important payments, or simply wanting a clearer picture of your finances, there are lots benefits to making a budget.
- Check your investment strategy is still appropriate
Rising inflation can eat away at the purchasing power of your pension fund and other savings. It’s only an immediate issue if you need to withdraw money straight away, but there are some potential steps you can take that could help protect the value of your fund.
Should you reposition your investment for an inflationary environment, shifting some of your money to sectors or asset classes that tend to do well during inflationary periods? Or should you leave your investments alone and let the markets control their long-term destiny? The answer partly depends on how long you expect inflation to last, and whether we are in a period of rising inflation. Specifically, some can combat inflation and subsequent interest rate increases better than others. When inflation is low and rising, as is generally the case during the start of an economic cycle, it is good for equities.”
If the economy overheats, however, demand exceeds supply, leading to higher inflation expectations and rising interest rates. For longer-term investments, such as your pension fund, it may well be worth reviewing your investment strategy to ensure it’s still appropriate. We’d always recommend you speak to your financial adviser about this.
- Check your savings
“Inflation is a time for investors and savers to reevaluate their strategies,” said Walter Russell, CEO of financial adviser firm Russell and Company.
Most experts say you should keep three to six months of your expenses in your emergency savings account. Anything above that could result in needlessly losing money to inflation. When it comes to your short-term savings, which is likely to be your emergency fund in an easy access savings account, shopping around for the best interest rate is advisable. Thinking strategically can help your money work harder and offset some of the impact of rising prices – even if you’re unlikely to find a savings rate that will match the current rate of inflation.
Here are some ways to save during periods of inflation.
- Look for high-yield interest rates
- Find ways to keep costs low
- Consider investing or buying bonds for long-term savings
- Plan ahead for key events
Planning ahead can help you manage your money more effectively and make savings when it comes to your regular outgoings.
It’s much easier to manage your finances if you know how much you’re spending under certain headings at the outset, and so can plan accordingly to stay within your budget.
You’ll also find it easier to plan for high-cost events such as holidays or buying a new car if you’re saving in advance rather than looking to meet the cost with credit card borrowing or a personal loan.
Building financial intelligence is about knowing what to do with money at every point, managing liabilities and turning them into assests. This would help you live a comfortable life in the face of rising costs of living.
However it goes, we can support you with a good life. log on to www.creditdirect.ng and apply for a quick loan.
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