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The cost of living crisis continues to dominate the financial landscape in 2024, affecting millions of people across the UK. Rising inflation, higher energy costs, and climbing interest rates are squeezing household budgets, leaving many feeling stretched thin. 

What’s Driving the Cost of Living Crisis in 2024?

The cost of living crisis can be attributed to several key factors, with inflation being a primary culprit. According to the Office for National Statistics, inflation in 2024 is sitting at around 2%.

Energy costs, while no longer spiking at the extreme rates seen during the global energy crisis of 2022-2023, are still much higher than pre pandemic levels. Homeowners and renters alike are seeing increased utility bills, and energy remains a substantial portion of the household budget. To compound this, the Bank of England’s decision to raise interest rates to combat inflation has made mortgages and loans more expensive, putting additional pressure on personal finances.

The Impact on Everyday Spending

The most immediate effect of the cost of living crisis is felt in everyday expenses. Basic necessities such as food, transport, and housing now take up a larger share of income. Many are finding it harder to make ends meet, let alone save for the future. Recent surveys indicate that over 60% of households have reduced discretionary spending, opting to cut back on non essential items like holidays, entertainment, and dining out.

Strategies for Managing Personal Finances in 2024

In these difficult times, taking control of your financial situation starts with making smart, informed decisions. Here are some strategies we recommend:

1. Revisit Your Budget and Prioritise Needs
   The first step to navigating the cost of living crisis is re evaluating your budget. Start by tracking your spending and prioritising essential costs like housing, food, and utilities. Look for areas where you can cut back, such as entertainment subscriptions, takeaways, or non essential shopping. Budgeting tools and apps can be helpful in keeping a closer eye on your finances and identifying where savings can be made.

2. Build or Reinforce Your Emergency Fund
   If you don’t already have one, now is the time to start building an emergency fund. Aim to save at least three to six months' worth of living expenses in a readily accessible savings account. This buffer can help protect you from unexpected financial setbacks, such as a job loss or sudden car repair.

3. Take Advantage of Higher Interest Rates on Savings
   While rising interest rates can hurt borrowers, savers have an opportunity to benefit. Make sure you’re taking advantage of higher interest rates by moving your cash savings into high yield savings accounts, ISAs, or premium bonds. If you’re not getting a competitive rate, now is the time to switch providers.

4. Consider Inflation Linked Investments
   Inflation can erode the value of cash over time, so it may be worth considering inflation linked investments. While stocks remain volatile, other assets such as commodities, bonds, or inflation linked savings accounts could offer some protection against rising prices. 

5. Cut Energy Costs Where Possible
   Energy bills are a significant contributor to rising household costs, so making your home more energy efficient can provide long term savings. Simple steps like upgrading to LED bulbs, investing in a smart thermostat, or improving insulation can reduce your energy consumption and cut bills. Take advantage of any available government schemes that offer grants or financial incentives for energy efficient upgrades.

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Long Term Planning Despite Short Term Challenges

While managing day to day expenses is crucial, don’t lose sight of your long term financial goals. Saving for retirement, building wealth, and planning for major life milestones are still important, even if they feel harder to achieve in the current climate.

Contributions to ISAs or pensions, however small, can make a big difference over time thanks to compound interest. If you’re struggling to save, consider setting up automatic transfers to your savings account or pension each month. Automating this process ensures that you’re consistently putting money aside, even if it feels like your budget is tight.

The cost of living crisis is reshaping the way we manage our personal finances in 2024, but by being proactive and making adjustments, you can navigate these tough times. From revisiting your budget to taking advantage of higher interest rates on savings.

Content on IceburgWealth.com is for informational purposes only and not intended as investment advice. While we strive to provide accurate and up-to-date information, Iceburg Wealth is not responsible for any errors or omissions, or for outcomes resulting from the use of this information. Readers should seek professional advice before making any financial decisions.