Recent research confirms that inflation is currently the main worry among UK customers, according to 83% of the adviser/planner profession.Â
And while the Consumer Prices Index (CPI) is falling from its October 2022 peak, it is falling much more slowly than hoped, and prices for many goods and services remain high.
If you’re worried about the effects of high inflation on your household budget or the reduced buying power of your savings, you’re not alone.
Keep reading to find out how speaking to HDA can help.
Inflation is falling but remains far short of the Bank of England’s 2% target
UK inflation soared as the country emerged from coronavirus lockdowns in the summer of 2021. The Office for National Statistics (ONS) confirms that it peaked at 11.1% in October 2022 but fell to 8.7% for the year to April 2023.Â
Source: BBC
The Bank of England (BoE) expect the CPI to return to its 2% target by late 2024, but that could leave you struggling in the meantime.
Seeking professional advice can help in several ways.
1. Helping to manage your household budget
UK inflation remains higher than many comparable EU countries, with food and energy inflation particularly high. This might be making household budgeting trickier than usual.
Making a list of income and expenditure each month can be a good way to identify areas where savings can be made. You might find forgotten subscriptions to services you no longer need or see unhelpful patterns in expenditure that you can break.
If you have financial worries in the present, it can be difficult to prioritise your long-term savings or focus on your future self. But you must continue to make long-term financial commitments.
That means continuing to pay into pensions, ISAs or general investment accounts (GIAs).
Cutting back on saving and investment now could have huge ramifications for your future lifestyle, including when and how you can retire. Cutting things like income protection or life insurance contributions could likewise mean that you aren’t protected when you need it most.
At HDA, we can help you to budget in the present while keeping your long-term plans on track so get in touch now.
2. Managing the diminished buying power of your savings
One issue with high inflation is that your bank account interest rate is likely to be much lower than the rate of inflation. That means that the buying power of your money falls as everyday prices rise more quickly than your money accrues interest. Or, to put it another way, your cash savings effectively lose value in real terms.
This can be particularly difficult to manage but you’ll want to keep at least some of your wealth in an easy access savings account, to cover day-to-day expenses, but also as an emergency fund.Â
You should have at least three to six months of household expenditure put aside to use if unexpected costs, or an unexpected gap in your income, makes covering your costs difficult.
Even though bank interest rates are improving, they are still generally much lower than inflation. That means you should have just enough, but not too much in your rainy day fund. Keep checking in with it to ensure it would cover you in an emergency.
3. Considering investment’s potential for inflating-beating returns
Investment offers the chance for your money to see inflation-beating returns but with risk attached. If you have excess cash that you’d like to invest, you’ll need to answer some important questions:
- What is my long-term goal?
- How much risk can I afford to take?
- What is my capacity for loss?
At HDA, we can help you to think seriously about the answers to these questions, ensuring that your investment is aligned with your goals and matches your risk profile.Â
It’s always important to remember, though, that the value of your invested fund can fall as well as rise so you’ll need to stay patient and focused on the long term.
If you have excess cash, adding it to an existing investment portfolio (via an ISA or GIA) or contributing to your pension could be a good way to combat high inflation and see real returns.
Of course, you’ll need to be clear about your long-term investment goal and be sure the choices you make align with your risk profile and capacity for loss. Inherent investment risk means that the value of your wealth could go down as well as up.
Get in touch
If you’re worried about the effects of inflation on your finances, or any other aspect of your long-term financial plans, we can help. Please get in touch via email at enquiries@hda-ifa.co.uk or call 01242 514563.
Please note
The value of your investment 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. Your pension income could also be affected by the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
