Cost of living crisis: rocketing prices mean you need to review your money more regularly

Money changes which may not have made sense a year ago are worth reconsidering, given the scale and pace of price increases.

The cost of living crisis is clearly already having an impact on our lives.

A study by credit firm Lowell has found that more than one in five of us are losing sleep over our financial worries, while a similar proportion say it’s denting their mental health.

These worries are well-founded too, given the rocketing prices we face paying for virtually everything.

It’s because of this situation that the Government last week launched a new package of financial support, including a £400 payment to all households to help with energy bills.

It’s certainly true that one of the best ways to deal with situations like this is to go through your budgets, and ascertain whether there are ways to save a few quid. 

But what’s crucial to remember is that this assessment cannot just be an annual exercise ‒ it’s important to give your finances an up-to-date audit to ensure that you aren’t overlooking possible savings, even if you reviewed things just a few months ago.

Moving the goalposts

The reality is that things have changed an awful lot in recent months, and that may mean that the calculations have changed too.

For example, let’s say that a year ago you looked at whether it was worth replacing your ageing boiler.

As boilers get older, they become less efficient in heating up your home. In effect, you end up having to use more energy to keep warm over time, compared to when the boiler is brand new.

Having a new boiler can therefore have an impact on the size of your energy bills. However, that potential saving has to be balanced against the cost of getting that boiler installed.

We had a new boiler installed last year, and it came to more than £3,500. That’s not exactly small change, so it’s understandable if the cost ‒ compared to the potential saving ‒ may have meant you delayed getting that new boiler.

However, back then my energy bill was guaranteed not to be any more than £1,200. The situation is significantly different today, with the energy price cap on course to be hiked to an eye-watering £2,800 in October.

Suddenly every single measure that can reduce our energy use, and therefore limits the size of our energy bills, becomes even more attractive. 

The shifting sands

Energy bills certainly aren’t the only example; it’s a similar situation with cars. It might be that you have been considering moving to a more fuel-efficient motor, but once again the up-front costs have put you off.

After all, the car market has been so strange of late that we’ve even seen some second-hand models selling for more than they would usually fetch new.

Yet the rate at which petrol and diesel has rocketed ‒ to yet more record highs ‒ may mean that a new motor which does more miles to the gallon now represents a more cost-effective option.

Making your money go further

One of the biggest spending considerations for households of all kinds is where we get our food.

Little wonder given the massive increases in food prices ‒ data from Kantar World Panel found that food price inflation in April reached the highest level seen in more than a decade.

But those price increases haven’t been uniform across different products, and indeed across different supermarkets.

As we highlighted last month, some items have seen their price hiked by more than 20% over the last couple of years, while others have fallen in price.

It may have been that shifting to a new supermarket wouldn’t mean much of a saving six months ago, yet that same switch would today mean a tangible reduction to your food bill.

Managing your money

Ultimately, the best way to get the most out of your money ‒ however you spend it ‒ is to be a little more active in reviewing your various deals.

It’s not going to be enough to simply have a bit of a spring clean of your bills once a year, and then forget about it for 12 months.

This is true at the best of times, but it’s even more pronounced at the moment given the speed at which prices are rising.

Inflation is at the highest level in decades, which means that all sorts of money changes you might not have bothered with a few months ago are now no brainers.

If you want to make your money stretch as far as possible, that means keeping a close eye on where your money is going regularly, and not hesitating to make those changes which have the potential to make a real difference to your bank balance.