Since the onset of the Covid pandemic (can you believe that was over 4 years ago now?), many individuals and families have found themselves feeling increasingly squeezed by a collection of financial pressures.
All resulting in less, if anything, being left at the end of the month.
This isn’t just affecting those on lower incomes, but those who, only a few years ago were more comfortable, able to enjoy life and save each month.
The squeeze we're all now facing is down to 2 reasons.
The first, is the highest tax burden for 70 years, as the government tries to re-balance the books following a succession of global shocks, which have impacted its finances.
The second, is that inflation has rocketed, and significantly outpaced wage growth.
Just how squeezed is the middle?
Well, we all know inflation has been incredibly high, which increases the cost of essentials, and the things that make life worth living.
To give some context, what you could buy for £100 in 2019, will now cost you £125 just five years later.
You’re therefore being squeezed from both sides: less coming in and more going out.
Something has to give.
Either some of the things that you enjoy doing, saving for the future, or both.
In doing so, means a lower standard of living and lower levels of financial security.
Squeezed Middle - You're Not Alone
The first thing to make clear, is that if this applies to you, you’re not alone!
A quick Google search for "middle class saving families UK" reveals tonnes of articles of people's stories and others of data, reflecting the fact that this is a widespread issue.
Added to this, analysis from the government’s OBR department shows we are collectively going through the biggest fall in living standards in 70 years (there’s a theme here), as shown in the chart below:
What Can I Do?
Ok, I get it.
It's not great.
Tell me about the solutions…
Review Your Spending
Never top of anyone's list for how to spend a few hours, but it's very revealing if you do, so make it the top of your list!
This process helps identify unnecessary spending and areas where you can cut back.
There are numerous tools and resources available online to assist with this.
Start with your bank’s app or website. Most banks now categorise spending automatically.
If you’re still struggling to make sense of the figures, simplify things and go through each monthly spend and categorise it under two headings:
Essential
Non-Essential
Everything in category 1 needs to continue.
Everything in category 2, you should question how much value it brings you, and whether you should continue to spend on it.
What you'll find is that most things on direct debit are essential, apart from those pesky subscriptions which have embedded their way in our lives!
Most non-essential spending is more sporadic, like meals out and day trips.
Making Tough Choices: Spending vs. Saving
In some instances, you may need to make difficult decisions about your lifestyle. This might mean choosing between having certain luxuries or doing fun things, and focusing on saving for the future.
While it’s important to enjoy life, finding a balance between spending on nice things and securing financial stability is essential.
If you’ve got little or no savings built up, this should be your priority, at the expense of some non-essentials, until you've got a buffer in place.
The Psychological Benefits of Saving
It's not just your bank account that benefits from saving; your mental health does too.
Research (https://www.bbc.co.uk/news/articles/cy08nnxr14po) has shown that saving money can significantly reduce stress and improve sleep quality.
Knowing that you have a financial cushion can provide peace of mind and a sense of security, which is invaluable during uncertain times.
Focus on Increasing Income
Not as quick a fix, but just as important.
Can you increase your income?
Ways to do this:
Seek a promotion
Move jobs to an employer paying more for the same role
Side hustles
Freelance work
This Won’t Last Forever
It's important to keep in mind that tough times, including periods of high inflation, are temporary.
At global and national level, the economic picture is getting better.
Inflation is falling and returning to normal levels, and wage growth is catching up with inflation, having lagged over the last 5 years as a whole.
The government knows people can’t continue to be taxed at this level for the long-term.
The indicators are all flashing green, it will just take a little time to feel for you and your bank account to feel it.
If you'd like to talk to us about your situation to see if our Financial Planning service could help, you can book in a free initial consultation here:
Otherwise, see you next time.
