Recent figures from the Resolution Foundation, published in the Guardian, suggest that the average UK household will be worse off by more than £1,000 this year.

High inflation, soaring energy bills and a rise in National Insurance (NI) will combine with shortages in supplies and workers, leaving millions struggling financially during the next 12 months.

Here are five simple steps you can take to lessen the effects of the cost-of-living crisis.

1. Track your household spending to budget more effectively

As inflation hit 5.5% for January, the price cap on household fuel bills increased by 54% to its highest ever level.

If you don’t have a firm grasp of your household budget, now might be a great time to review your spending. Keep a spreadsheet of your monthly income and outgoings to effectively track inflation-affected areas.

Remember that inflation doesn’t act uniformly across your outgoings so you might see steeper price rises in certain areas. Can you cut back on these items or find cheaper alternatives?

Making a note of your expenditure can also highlight wasteful habits such as unused gym memberships or subscription services.

However hard the cost-of-living crisis is likely to bite in your household, finding ways to cut back is always a good idea. You might find that you have additional disposable income, perfect for riding out the crisis or diverting into savings and investments.

2. Review your savings

You must have an easily accessible emergency fund in place, usually held in cash, as a buffer against an unexpected financial shock. We would normally recommend holding a fund equivalent to between three to six months of household expenditure to cover bills or mortgage payments.

In the current economy, keeping more than the recommended amount in your emergency fund is especially inadvisable. With savings rates low and inflation high, your money could be effectively losing value in real terms.

Review your savings now, and if you are holding more than you need, consider investing. You’ll have the potential for inflation-beating returns but with the added risk that your value could decrease too.

3. Consider investing

Back in October, you might have read ‘Understanding long-term investment – Capacity for loss versus attitude to risk’ in which we explained the key benefits of long-term investment.

The general trend of the stock market is upward but you’ll need to think carefully about when you might need to access your invested funds.

We strongly recommend investing only if you have a clear goal in mind and one that is at least five years away. This gives your fund time to grow and to ride out any periods of short-term volatility.

You’ll also need to think about your attitude to risk. A key component of investing, your attitude will depend on many factors, including the purpose of your investments, your attitudes to money and your capacity for loss.

We can help you build a diversified portfolio that spreads your risk while still aligning with your long-term goal. We can also break down your expenditure to calculate your capacity for loss.

Whether you are an investing pro or a novice, it’s important to remember that everyone has to start somewhere, and at Boolers, we’ll be on hand to help you, whichever stage you are at.

4. Consider salary sacrifice to beat the NI rise

If your budget and spending review highlighted disposable income you didn’t know you had, be sure to pay your future self first. Money placed into a pension or tax-efficient investment product, like an ISA, could see inflation-beating returns if you are willing to take the associated risk.

If you’re still in employment, it’s also worth considering how your pension could be working better for you.

Last year the government announced a 1.25 percentage point rise to NI from April 2022. Payable by employers, employees, and those workers over State Pension Age, it will affect the take-home pay of millions.

One way to minimise the impact of this rise could be to make use of your employer’s salary sacrifice scheme. The scheme reduces your salary, and thereby the NI due, by paying a portion of your pay straight into a non-cash benefit such as your workplace pension.

Opting for salary sacrifice will reduce the NI liability for you and your employer but be sure to speak to us before you make any changes. Lowering your salary could affect your entitlement to maternity or paternity pay, and other state benefits. It might also decrease your chances of being granted a mortgage.

5. Speak to the experts

There are many ways to lower your expenditure, manage your budget, or save more tax-efficiently.

At Boolers, our team of dedicated professionals have decades of experience to help you understand the right strategy for you.

Get in touch

If you would like to discuss any aspect of your finances and how Boolers can help you through the current cost-of-living crisis, please contact us today.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Workplace pensions are regulated by The Pension Regulator.