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How Taking the Long View Can Help Ride Out the Cost of Living Crisis

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How to manage your cost of living in the UK through financial planning

You’d have to be living in a bunker not to be well aware that your standard of living in the United Kingdom is going to come under sharp attack from rising inflation over the next couple of years due to the high cost of goods and services.

You’d also have to have no gas or electricity supply to the said bunker, have already stockpiled all the food you need and have no plans to fill up a vehicle with petrol or diesel.

According to a report by the UK Office for National Statistics, the Opinions and Lifestyle Survey (OPN) of people in the first half of March shows that 81% of UK residents reported an increase in their cost of living.

The COVID-19 pandemic and now the w a r in U k r a i n e have done significant damage to the global economy. Supply chains for gas, oil and essential foodstuffs are creaking due to a combination of disruption and soaring demand.

The inevitable price increases are already coming home to roost. Forecourt prices are at record highs. The UK energy tariff price cap has already gone up by 54% and more of the same is likely to follow in the autumn.

People Are Scared of the Impact of Inflation on Them and Their Businesses

Naturally, people are concerned about the immediate impact high inflation will have on them. How will it affect my household budget? Do I have the cash flow to cover all their bills? What does it mean for plans to finally take that luxury holiday to Dubai or Australia after two years of not travelling abroad? Or planning a wedding or buying a house in the United States?

When we worry we don’t find it easy to lift our thinking out of the present moment and consider the bigger picture. It’s part of our survival instinct. Get through it and ask questions later. As such, economic crises are not very helpful at all for sound financial management and planning. The bigger picture very much matters.

It’s one of the reasons why, at Fiducia Wealth, they put the emphasis on providing financial planning advice, rather than just financial advice. You can take financial advice on anything you like in isolation – saving up for the deposit on a new home, consolidating debts, setting up a pension or investing your savings to generate a higher income.

But financial planning means joining the dots. It recognises that when it comes to our finances, nothing happens in isolation. What we spend today affects what we can save or afford tomorrow, or six months or five years down the line.

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Financial planning means taking a strategic long view. And it is an approach that is equally effective in helping to ride out economic turbulence such as that we’re experiencing today, as it is building towards desired goals years or even decades down the line.

Conscious Approach to Spending Using the 30-Day Technique

Conscious approach to spending

Jack Walmsley, Chartered Financial Planner at Fiducia Wealth, wrote a blog recently in which he described the ‘30-day technique’ for making decisions on what to spend. If you see something you want to buy (more in the luxury category than day-to-day essentials), give it 30 days. If you still want it, and you are confident you can afford it, buy it then.

The point Jack was making was about taking a long view of our spending habits. Most of us buy on impulse, or near enough on impulse. The effect is that we end up losing track of what we are actually spending and are often spending on things we don’t really need or even want.

Financial planning tells us that the route to achieving big ambitions – saving the deposit on a house, and building a pension fund that will allow us to retire early in comfort – is a conscious and prudent approach to money management in the present. If you can just £20 from what you spend every week, that’s a saving of £1,040 a year. £50 a week, which adds up to £2,600 a year.

These are the strategies we suggest to people who come to us for financial planning advice. If you want to achieve your long-term financial goals, spend with the bigger picture in mind. A case of looking after the pennies and the pounds taking care of themselves, if you like.

But this is also the kind of strategic approach to money management that will help you get through the current cost of living squeeze. Rather than worrying and shutting ourselves away in our bunker, there are simple, rational, practical approaches we can take to ease the pressure. The techniques are the same – be conscious of what we are spending, and think critically about what we are spending in the context of the bigger picture.

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Of course, the big picture changes all the time, whether that’s down to changing life ambitions or circumstances. Or, as most of us are experiencing at the moment, because of external factors. Higher energy bills or a more expensive monthly food shop might force us to reconsider some of our spendings, for a while at least.

But if our long-term goals remain to have enough spare cash at the end of every month to save or invest for something further down the line, or reduce or avoid debts, then that is the rational, strategic choice. It will serve us well seeing us through trickier times and put us in a position to enjoy the fruits in the future. Take this article seriously if you want to manage your cost of living effectively.

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