With the cost of living crisis set to worsen, here's what I'm doing to get on a sounder financial footing.
Chances are it only takes a cursory look at your bank balance to see that inflation is already starting to bite.
The cost of living is set to jump even more strikingly for many of us next month when the massive energy price cap increase kicks in.
My own energy supplier wrote to me a couple of weeks ago to suggest that my bill is likely to cost me £1,000 more this year, for example. Ouch.
Coupled with the rising prices seen at supermarkets and on other regular spending, I decided it was time to take action on my own expenses.
Here’s what I’m doing to give my finances a helping hand.
Dropping my mortgage overpayments
One of the biggest outgoings we have as a household is the monthly mortgage bill, so it made sense to take a fresh look at how much we are spending.
We signed up to a five-year fixed rate four years ago, landing a cracking rate at 1.87%.
It has meant that our monthly repayments come to around £790 a month, but for the last couple of years I’ve been topping this up through voluntary overpayments.
Most mortgages allow you to overpay by up to 10% of the outstanding mortgage balance each year without hitting you with early repayment charges (ERC), and it can be a seriously powerful tool when it comes to paying off your mortgage early.
In the case of my family, we have been bumping that monthly payment up to £900 a month, which has had a real impact on the size of our outstanding home loan.
In an ideal world, I’d keep the overpayments at that level, but with rising costs elsewhere it made sense to me to drop the overpayments, for the short-term at least.
Hopefully, things will settle down in the months ahead and I’ll be able to hike them again, but for now, I think it makes sense to devote that cash towards the higher energy bills instead.
Time to remortgage
My mortgage decisions didn’t stop there though ‒ I bit the bullet and remortgaged a year early (learn more about remortgaging here).
This wasn’t an easy decision, by any stretch. Remortgaging early meant coughing up on the ERC, money which couldn’t be added to the mortgage balance either.
However, there were a couple of big positives in my mind.
First was the initial mortgage rate, which at 1.57% straight off the bat represents a decent saving on our current rate.
It means that we will be paying £40 or so less each month, which can also go towards the bigger energy bills coming our way.
In normal times that wouldn’t be enough to push me into coughing up an early repayment charge. However, these aren’t normal times, and the reality is that it looks like interest rates are only going up from here.
We have seen Base Rate increase twice in the last couple of months, and with the Bank of England expecting inflation to hit 7% in the months ahead, the likelihood is that there are a few more increases ahead.
Indeed, the market is expecting Base Rate to hit 2% early next year, which is when my old fixed rate would have been reaching maturity.
As such, that 1.57% deal we have taken simply wouldn’t be an option in a couple of months, let alone a year’s time.
If Base Rate is in fact at 2% ‒ or higher ‒ in a year’s time then I’d be looking at a sharp increase in the monthly mortgage bill, rather than the reduction I’ve got now.
I have no crystal ball, so this could all turn out to be completely wrong. But for now, I’m satisfied that I’ve taken a sensible step.
I need a new broadband deal
As someone who works from home full time, having a broadband connection you can rely on is essential.
So it stung a little when Virgin Media announced price rises earlier this year, with the provider informing me that the hike would mean my bill going up by £4 a month.
Virgin is one of the few providers that doesn’t write it into their terms and conditions that they can increase prices to match inflation each year, so I would have been permitted to use this price rise as a reason to leave, without having to pay any exit fees.
And it was something I considered.
I used a couple of different broadband price comparison sites to get an idea of what I might pay for similar packages elsewhere, and then called Virgin to see what they could do.
In the end, Virgin agreed to cut my bills by £5 a month until my package is up in a couple of months.
It’s a short-term fix, wiping out the announced price rise entirely, but I know I’ll have to go through the process again once that deal finishes.
What about the mobile?
I have been with O2 for years.
Usually, I’ll sign up for a contract for a couple of years, pay off the handset, and then look to upgrade. Recycling the old handset tends to bring a few pounds back as well.
This time around, I’m taking a different approach.
I’m happy with the handset, and ‒ touch wood ‒ it has lasted me just fine. It is entirely paid off now, which means that my monthly bill is just for my use.
However, that bill comes to just shy of £20 and I was certain I could do better than that.
In the end, I’ve opted for a SIM-only tariff from giffgaff which is half the price and offers me everything I need from a mobile phone tariff.
There are two additional benefits to consider to this deal. Firstly, I shouldn’t see any difference in service, since giffgaff piggybacks off the O2 network, and secondly, the tariff has no tie-in.
Instead, it runs on a monthly basis, so if at some point I decide to move to a different provider ‒ perhaps because the handset packs in and they have a killer deal ‒ then I can do so without having to worry about exit fees.
These are just the first few measures I’m taking to try to keep my finances in better shape, but there will be further changes in the months ahead, for example, once my main broadband deal finishes in a couple of months.
But it hopefully serves as a useful reminder of the steps you can take to tackle the rising cost of living.
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