Average UK family has less money to spend on luxuries than four years ago

Slow growth in wages means that UK families don't have much extra cash to spend on luxuries such as cinema trips and holidays.

The average UK family had ‘disposable income’ of £155 a week in February. That’s a 2% increase over the last year, but is £2 a week lower than the equivalent figure in 2009.

If you’re wondering what ‘disposable income’ is, it’s the amount of income a household has once it’s paid taxes and bought all the essential items such as food, clothing, transport and housing.

So you might use this disposable income for ‘fun’ stuff such as going to the pub, or you could choose to save it for your future, or a combination of the two. Here’s a summary of how much disposable income households have had over the last four years. The figures come from Asda’s Income Tracker survey.

Weekly disposable income for average UK household

Source: Asda Income Tracker

I think the above table makes pretty depressing reading. Yes, on the plus side, families have slightly more money to play with than a year ago, but they were significantly better off three years ago – around the time of the last election.

Causes

So what has caused the modest improvement over the last year?

Well, the most positive change has been the rise in the number of people in work, up by 590,000 to 29.7 million people. It’s also good to see that food price inflation has slowed down a little, falling from 4.2% in January to 3.7% in February.

But there are also several factors that held income back. Firstly, regular earnings (excluding bonuses) rose by only 1.2% over the year to January, well behind inflation. And secondly, there have been big price rises for electricity, up 6.4%, and gas, up 7.2%.

The future

I fear that disposable income isn’t going to rise by much in the years ahead. Most employers won’t want to give big pay rises in the current climate and I also worry that further weather shocks will push up food prices.

So if you want to have more money to spend on ‘fun stuff’, you’re probably going to have to manage your money better. If you spend your money more efficiently, you’ll get more bang from your buck and you’ll have more disposable income to play with.

Spend less on essentials

The best way to boost your disposable income is to spend less on essentials. That doesn’t mean you have to freeze in your home or eat nothing but rice. But there’s a good chance you could save money if you shopped around more.

Don’t just accept the renewal quote on your car insurance every year. Make sure you compare all the leading deals on the market. Do the same with your home insurance and any other insurance policies you may have.

You should also follow a similar approach with your gas and electricity. With energy prices soaring, it’s essential that you pay the lowest price possible. Read more in How to pay 2011 energy prices!

Budgeting

Budgeting is also really important. If you don’t set yourself a monthly or weekly budget, start one now! And even if you already have a budget, you may be able to improve it.

For starters, are you including all your spending in your budget, right down to the smallest items? If you include how much you intend to spend on, say, diet cokes, you may find that you can cut back on the amount you spend here – that could benefit your health as well as your bank balance.

Lovemoney’s MoneyTrack tool could also help you budget more effectively. This tool enables you to see all your spending on your current account and your credit cards – all on one page. Your spending is split into different categories such as ‘Eating out’ or ‘Gadgets,’ so you can see where your money is going.

Even better, you can also set a budget and then monitor whether you’re keeping within that budget every day.

Hopefully by budgeting better and spending less on essentials, you’ll have more disposable income for the next year. And, who knows, if you get really lucky, you might get a decent pay rise too…..

• Check out MoneyTrack here

More on budgeting

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Lifestyle ‘essentials’ that aren’t essential at all