The latest inflation report from the Office for National Statistics (ONS) confirms that inflation for the 12 months to July 2022 hit 10.1%. This marks another 40-year high and the first time the figure has reached double figures since 1982.
Rising costs alongside October’s scheduled energy price cap rise will see UK households feeling the pinch this winter. The Resolution Foundation forecasts that the number of Brits in absolute poverty will rise by 3 million over the next two years, reaching 14 million by 2023/24.
But it isn’t just those on low incomes who will struggle as the crisis deepens. Rising inflation could present higher earners with a unique set of challenges too.
Keep reading for your look at what the crisis could mean for you.
Factoring the crisis into your plans now is key
Inflation has been on the rise since mid-2021 when UK consumers – and those from across many developed economies – emerged from Covid lockdowns.
A surge in demand coincided with global supply chain issues and Brexit labour shortages that saw UK inflation quickly rise above the Bank of England’s (BoE) 2% target.
Global events, including stunted economic growth in China, and then Russia’s invasion of Ukraine, further exacerbated the problem.
The BoE now forecasts that inflation will hit 13% and not return to its 2% target until 2024.
As a high earner, your increased financial resilience will likely shield you from the worst of the crisis. That could change, though, if you don’t spot the dangers as they approach and act now.
3 important factors to consider as a high earner
1. You might need to financially support dependents
With prices rising across many sectors, your financial dependants could be facing a tough time at the moment.
Adult children will be watching their household fuel bills rise alongside yours. They might not yet have the same level of financial resilience though. Children new to work, still at university, or in rental properties might need financial help to see them through the crisis.
So, too, elderly relatives. As costs rise at home, businesses – including caregivers like nursing homes – are feeling the effect of soaring prices too. With the cost of providing later-life care already high, This is Money reports that the cost of self-funded care in UK care homes could rise by £15,000 to £30,000 a year over the next three years.
While you might have built a nest egg to help provide your children with increased financial stability, you might find supporting elderly relatives means tightening your purse strings.
2. You could have large variable-rate debt
As a high earner, the size of your manageable debt is likely to be larger than that of a lower earner. But it is the proportion of monthly income used for debt repayments that is important here. So too is whether the debt you hold is on a variable rate.
The BoE has already raised its base rate at six meetings in a row. Back in December 2021, interest rates stood at 0.1%. The rate is currently 1.75% with further rises expected.
In fact, a recent Guardian report suggests it could rise as high as 4% by May 2023.
The rises are part of the BoE’s plan to curb rising inflation, but an economic climate of rising rates could see the cost of your debts rise significantly. Taking steps now to revisit and manage your debt could help to mitigate the impact as the cost of borrowing continues to rise.
3. You might face rental pressures on private and commercial properties
The cost of living crisis is disproportionately affecting those on lower incomes. Household fuel and food bills account for a larger portion of the income for this group; hence the worrying poverty figures from the Resolution Foundation.
This could affect your financial stability too, though, if you own buy-to-let properties or receive business rent from commercial properties.
You will find your costs as a landlord rising, possibly forcing you to rise rental prices at a time when you know your tenants are struggling to maintain payments.
We can help you to manage your budget as costs spiral, adding contingencies for late or missed payments.
Get in touch
As a high earner, the rising cost of living might not be a direct threat to your financial stability in the short term. As the crisis continues, though, you might find you need help managing your income or debt repayments.
At Boolers, we have decades of experience within ever-changing markets, so contact us if you have any questions about inflation, rising bank rates, or any other aspect of your long-term financial plans.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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