The headlines in the UK at the start of 2011 have been dominated by the controversial news that the government has increased VAT from 17.5% to 20%. This increase in taxation will be felt across all demographics but it’s been claimed that it will be the poorer off who will be affected the most.
Even without taxation increases, the cost of many important items, including groceries and fuel, has been rising in recent months, at a time when salaries have been struggling to keep up with inflation and when many households have had to face up to the hardships caused by redundancies. All of this, of course, is closely connected to the global recession that has taken grip of the world’s economies and the bad news is that most economists are predicting a slow and bumpy road to recovery.
Against this depressing backdrop, the onus has been shifted to individuals and households to find ways to cope with the increased cost of living. I suppose it’s relatively comforting, however, to reflect that we are not the first generation to have to deal with the fallout of a major failure in the Western capitalist economic model. Previous generations faced up to similar challenges and came out intact on the other side. Many of the coping mechanisms that we need to turn to are the same as were utilised by those who lived through the 1920s Great Depression.
Learn the importance of living within your means:
A major factor in the current economic mess is that far too many people have been inhabiting a world of debt and living way beyond their means. It’s time for the old saying of “never a lender nor a borrower be” to re-enter the popular lexicon. Individuals should seek to reduce and pay off all existing bad debt, which includes unauthorised overdrafts, credit cards, and loans, and to then to rigorous in not spending more than they earn.
Implement a budget:
A core component of living within your means is to implement a budget. This basically means that you need to know what you are spending money on, broken down into various categories such as groceries, commuting, entertainment, etc, and then set monthly or weekly targets in terms of how much you are going to spend. Having a budget should result in a more disciplined approach to spending.
Ensure that you get good value from all your purchases:
We live in a time when convenience is king but this often results in laziness when making purchases. Shopping around for the best deal on your insurance, mortgage, utility bills, and major one-off purchases can result in huge savings rather than going with the company you have always purchased from or the company that is closest to your home.
Re-use and recycle:
Buying items second hand can deliver huge savings over buying brand new expensive items. Cars are a prime example of this but Internet companies such as eBay and Amazon offer the ability to pick up a huge range of goods second hand at cheaper prices. As well as this trend, we are likely to see people waiting longer to replace their car, settee, PC, or smartphone, etc.
Implement strategies to reduce costs of major regular costs:
When the increased cost of living is mentioned, the two cost categories that are most often highlighted are groceries and fuel. With both of these, there are simple strategies that can be employed to reduce your monthly outgoings. For example, with groceries you can switch to a lower cost supermarket, do one big weekly shop, make use of coupons, and buy own brand produce. Similarly, with fuel costs, you could consider a car share arrangement, or your employer may agree to allow you to work from home one day per week. Or maybe it might be feasible to shun your car and cycle to work.
Dealing with sharp increases in the cost of living won’t be easy and it’s likely that there will be a big increase in the number of people seeking financial advice and assistance. However, many of us will be able to deal with its consequences by adapting our spending patterns and being more disciplined in how we deal with our finances. In the long-term the budgeting skills and disciplines that we acquire may prove extremely rewarding as we hopefully start to move back towards more prosperous times!