SOARING bills for groceries, fuel, energy – and more – are taking a serious toll on household budgets. The cost-of-living crisis not only threatens short-term finances, but also has a knock-on effect on the ability to maintain regular savings in the long term.
When bills get more expensive it’s likely that people make cuts, which might include reducing or stopping payments into savings accounts and ISAs. A new study revealed that three in five (62%) already admit they are struggling to maintain savings commitments, with a third (33%) highlighting the increased cost of living was the main obstacle.
Those aged between 35 and 55 were most likely to cite the cost of living as the main hindrance to saving, in the study by Paragon Bank. 37% of respondents in this age group reported problems compared to 31% of those aged between 18 and 34 and the over 55s.
A separate report shows that a quarter of workers expecting bonuses this year will use the money to meet rocketing household bills. Ordinarily some of this cash might be used for longer-term needs such as retirement, but this is unlikely to be the case for many this year.
The study, by financial services firm Wesleyan, also found that just under half of UK adults will be asking their employer for a pay rise this year to meet the rising cost of living, with one in five having already made a request.
The importance of saving (and paying yourself)
Maintaining monthly savings levels or committing towards a new savings in this environment can be challenging, but it’s important to try and stick with your regular savings habit. What’s important to remember is that you’re paying yourself to ensure that you won’t struggle in the future.
The pandemic certainly served to illustrate the importance of having a savings account to call on when times get tough. Try to think of your savings and investments as another bill to pay and prioritise them as you would other investments. Here are a few pointers that can help with motivation to persevere with saving.
- By limiting spending in other areas, you can continue on your investment journey and keep saving. Take some time to through your bills and make sure you’re on the best deals for everything from your mobile phone and broadband to your mortgage and TV subscriptions. Keep going until you have made some savings.
- Automating your savings keeps investments going without having to make the conscious decision to part with the money and make the transfer. Having a monthly amount on payday that goes to your savings and investments can help you become a more disciplined investor.
- And by drip-feeding your money into an investment over time, you invest across a range of prices. This effectively means you pay an average price over a fixed period, which can help smooth out market volatility.
- Saving over the long-term enables investors to benefit from the power of compound growth. In simple terms, your money earns a return in the first year, in the second year and both the original investment and the return benefit from any growth in the second year. In the third year your investment is further enhanced by any returns achieved. This snowball effect is called compound growth.
If money becomes seriously tight and you are approaching the point where you’re borrowing to pay bills, it’s time to talk to a debt pro. You don’t need to be in serious debt to ask for help – debt charities will guide those with any level of debt that cannot be paid back.
Consider charities such as National Debtline (https://www.nationaldebtline.org 0808 808 4000), StepChange Debt Charity (https://www.stepchange.org 0800 138 1111), or the Debt Advice Foundation (http://www.debtadvicefoundation.org 0800 043 40 50).
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