Managing your finances as the cost of living rises

With utility bills increasing and costs for essentials such as food, transport and petrol rising, many of us are reassessing our personal spending.

It can be hard to balance study and work if you are also worrying about your finances. All of us are aware of price rises, and whether studying full time straight from school, switching careers or combining employment with working towards an AAT qualification, there is a need to reassess spending and costs. Here’s a checklist on how to manage costs and budgeting so that you can continue to find time to work towards your AAT qualifications without financial concerns distracting you.

1. Make a budget

This is the single most helpful action you can take to begin sorting out your finances. Start by listing all your monthly (or weekly) outgoings, including rent or mortgage, utility bills, phone and broadband, membership of professional bodies, food bills, transport and travel, gym membership, and any other payments which go out every month.

Your regular and essential payments – council tax, rent, mortgage and utility bills – are your base costs which you need to cover with your income, student grant or savings.

Then work out how much you are spending on important but non-essential costs such as streaming subscriptions, gym membership, socialising and entertainment and clothes.

Can you make savings here? Do you use these subscriptions or are they on a monthly direct debit that you have forgotten to cancel?

Finally, set yourself a reasonable and realistic budget based on how much money you have coming in each month, versus your total costs.

2. Identify your non-essential costs

“Going through your spending with the finest tooth comb can help you find areas where you may want to cut back,” says Alex Brown, financial adviser at Succession Wealth.

“Seeing exactly where your money’s going will help you pin down where you can make savings. A great way of doing this is by breaking down your fixed monthly outgoings (utilities, mortgage, car insurance, etc.) and discretionary outgoings (gym, Netflix, morning coffee). This helps identify what could be reduced or abandoned altogether.”

Ask yourself: What’s coming in and going out? Can I get something cheaper? And (often the hardest of all): Do I really need that?

“You want to look at all your expenditure that’s going out each month, there may be a lot more than you think,” he says.

3. Shop around for better deals

Ben Gallizzi, energy expert at Uswitch.com, says there is still a lot of confusion about government support available around utility bills.

“It is important to remember that the price guarantee of £2,500 is only an average bill — so you will pay more if you use more energy,” he says.  

“It’s really important that households track their energy and cut their usage where possible – as well as keep an eye on all household spending.  

This could also involve shopping around for better deals on broadband and insurance costs when it is renewal time.

4. Try to pay off or transfer expensive debt

If you have a number of different debts in the form of credit cards, overdrafts and bank borrowing, check what interest rate you are paying on each one. Interest rates vary widely but some credit cards can be charging up to 30% APR interest on unpaid balances.

Laura Howard of Forbes Advisor, said: “According to the Bank of England’s latest Money and Credit Report average rates on interest-bearing cards stood at 18.57% in July. Not only are these rates painfully expensive – but they are variable. If you have to borrow, always look for a credit card offering 0% on purchases. Make shifting any existing card debt to a 0% balance transfer card a priority.”

You should also look carefully at your mortgage deal. If you locked into a fixed rate a couple of years ago and your deal is coming to an end, you may need to act quickly to refix your home borrowing to a low interest loan. If you have any questions, speak to your lender who can explain your options, or seek professional advice from an independent mortgage broker.

5. Make the most of savings rates

If you do have some savings, compare the best buy rates on line as savings interest rates are starting to rise.

Leaving spare money in an old savings account or in your current account will mean that your cash will earn little or no interest.

“Savers who do nothing, get nothing – they’ve got to switch to get a better return on their money,” says Laura Suter, head of personal finance at AJ Bell.

“Almost anyone with money sitting in a current account, or who has had their savings account for a year or more, could get a better rate by switching.”

Alex Brown of Succession Wealth says that when it comes to financial security, one of the most important things you can do is to keep emergency savings aside for when you may need them.

“Having a nest egg that you can tap into may help you weather a rising interest rates storm,” he says. “One method is to create a dedicated savings account that you only use for this purpose. This way, you can easily access the funds when you need them, but they remain out of reach for everyday spending.”

Aim to build up enough to cover between three to six months’ expenses, or as much as you can afford. The best thing to do is make room for your savings in your budget as one of your outgoings, he says. By doing so, it’ll help you see your savings as a must, rather than a must-do-later.

6. Don’t neglect your pension

He also warns that it is best not to dip into your pension or investments.

“Drawing down on your pension or selling investments could leave you worse off in the long run, so it’s important to consider all of your options before making any decisions,” he says.

More help and information

If you are struggling with your finances, you can get free advice from charities and organisations such as National Debtline, StepChange and Citizens Advice. Never pay for debt advice, as this is unnecessary and can make your finances even more stretched.

If you are feeling that your finances are being squeezed, there are budgeting tools available online.

Mortgage issues are best dealt with as soon as possible, so if you are struggling to keep up with repayments, contact your lender as soon as possible.

• National Debtline
• StepChange Debt Charity
• Citizens Advice

Marianne Curphey is an award-winning financial writer and columnist, and author of the book How Money Works. She worked as City Editor at The Guardian, deputy editor of Guardian online, and has worked for The Times, Telegraph and BBC.