Living Within Your Means – Easier Said Than Done?

Costs of living fall across a wide range of spending categories, each susceptible to pricing peaks and valleys. With inflation on the rise in the UK, affordability challenges may be on the horizon for many Britons – particularly those living in the country’s costliest cities.

In the face of rising costs, personal money managers are again tasked to make more from less, covering financial obligations. But it may be easier said than done for families slowed by high living costs and little recourse for relief. In fact, by some observers’ estimates, living standards are slipping since the Brexit referendum, under a general sentiment of uncertainty.

Finding Stability during Uncertain Times

Meagre wage increases are not keeping pace with rising prices, so inflation is now registering not only in UK households, but also in economic reports. The economy is in-effect being pulled in opposite directions, as consumer spending slows and segments like retail and leisure begin to reflect the disposable income pinch.

The pound remains down 15 percent against the dollar and 10 percent against the euro, driving higher prices on imports, including food and fuel. So according to some experts, if last year’s prevailing economic story was prolonged high spending levels among Britons, this year’s dominant theme may be a continued spending slowdown.

Exercise credit restraint

With diminished spending power setting-in, it may be tempting to lean on borrowing opportunities to weather the proverbial storm. History shows the risks of that course, however, as economic fortunes are not guaranteed to quickly turn back in your favor. In a worst case scenario, the economy could experience a prolonged slide, drawing you deeper into debt, without the means to climb out. Restrained use of credit can bridge short-term income gaps and temporary shortfalls, but extra efforts should be made during uncertain economic times, ensuring finance is truly needed and you can afford to make repayment. Credit opportunities should be evaluate on these terms:

Does it pass the affordability test? – Before borrowing, it is important to thoroughly assess how a new payment obligation fits within your budget. Ensuring your income is sufficient to cover payments is an essential starting-point, but an effective affordability test also looks at contingencies. Are you prepared to make payments in the event of an income interruption? Even a short-term cash flow hiccup can set off a chain reaction within your personal finances, so you should have at least a few months’ payments held in reserve. Will repayment suffer if household costs rise? During periods of inflation, household expenses can quickly rise beyond affordability – even without changes to your spending habits. Carrying debt adds further pressure to your household economy, when you least need the extra strain.

Are you getting the best possible value? – Whether you make a long term funding commitment or take-on a payday loan to cover short costs, it is vital to make the most of each credit opportunity. Comparison sites like readies feature up-to-date lists highlighting payday loan terms offered by various lenders, as well as information about other types of financing. Using these resources to review potential providers side-by-side is the best way to account for costs and land the best finance values.

Is the financing warranted? – With competitive lending pressure driving consumers to take-on debt, each new credit opportunity should be fully justified, before signing-up. Is the money aimed at a legitimate need? Are there other funding options available? Do economic conditions support another round of personal financing? Answers to these and other relevant questions can help you weigh the pros and cons of adding a new debt obligation.

Balance Income and Expenditures

Though economic slowdowns commonly result in borrowing upticks, spending discipline and a balanced budget can help you avoid adding new debt. If expenses rise without a corresponding income boost, start with a close look at your fixed costs. In an extreme case, you may be forced to realign expenses to affordable levels, calling for a move or another drastic change. Manageable pressure may ease with only minor lifestyle adjustments and a renewed commitment to a balanced household spending budget.

Personal spending power ebbs and flows with the economy, so your shopping habits may not be the only thing interfering with your cash flow. If you are starting to feel the squeeze from growing inflation, credit control and spending discipline may be all that’s needed to keep you above water until conditions improve. Persistent problems, on the other hand, may call for more lasting adjustments, in order to restore affordability.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

Leave a Comment

Your email address will not be published. Required fields are marked *