Budgeting in a cost of living crisis

Martin Tanner, 1st December 2022

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It only takes a trip to the supermarket to confirm the rumour that costs are increasing. Almost across the board, prices have been raised on the goods and products that we consume every day. This is confirmed by data. In the UK, accoding to the Office for National Statistics (ONS), food and non-alcoholic beverage prices rose by 13.1% in the 12 months to August 2022. This is a significant uplift. A food shop that cost £80 in August 2021 would cost more than £90 in August 2022. This is no doubt a trend that has been noticed by most people reading this blog. And it goes beyond food and drink. Energy prices have also made the headlines, with wholesale gas and electricity prices consistently climbing (although they have dropped away from their peak at the time of writing). Whilst governments have built in some protection, many of these costs have been passed on to consumers - and the energy costs are also a direct contributor to the increases to day-to-day costs as well.

So if costs are constantly increasing, what is the point of setting a budget? Surely it is impossible to forecast how much we are likely to spend on food, or electricty, or Christmas presents if these costs are constantly changing? These are fair concerns - but they don't remove the need to have a grasp on our budget overall. It's essential that we know the difference between our income and expenditure (either positive or negative) so that we can respond appropriately in our spending habits. Yes that difference might change rapidly in line with increased prices - but it's far better to work with a budget that may become outdated in a month or two than to bury our heads in the sand and assume that we are still in the same place as we were when everything added up nicely last year.

So what do we do when we rerun our budget and realise that we are now spending more than we earn? This is a very realistic and probable scenario for millions of people, as we rerun our budgets. And it is not sustainable for anybody, although the reaction that we need to take does depend slightly on the buffer that we have in terms of savings and "nice to haves" in our expenditure items.

So what do we do when we rerun our budget and realise that we are now spending more than we earn? This is a very realistic and probable scenario for millions of people, as we rerun our budgets. And it is not sustainable for anybody, although the reaction that we need to take does depend slightly on the buffer that we have in terms of savings and "nice to haves" in our expenditure items.

Regardless of circumstances, it is likely to be these "nice to haves" that are the first item to combat. Unless you have a significant savings account (and you are happy to burn through it), it is essential to identfiy things that can be removed from your expenditure with little impact on your day-to-day quality of life. Things like streaming services, premium TV packages, takeaways and expensive clothing are all obvious starting points. Whilst some subscriptions may have a set contract end date, others can likely be cut back immediately.

The trouble is, many people will already have done this. So what's next? What else can be done? The simple answer is that there is no simple answer. Everybody's circumstances are different. The good news for many is that inflation rates are forecast to drop throughout 2023, which means that people who are expecting any kind of payrise will experience some relief in the coming months. It may be that short term solutions (spending from a savings account or even using some borrowing) is an affordable option - with a view that the current circumstances will hopefully improve. However, this is not an option that should be entered into without appropriate care and caution, with advice from appropriately qualified sources recommended wherever appropriate.

For people who are not expecting a payrise (or where the payrise will not offset the cost of living in the short to medium term), more significant changes will be necessary. Every option needs to be examined on merit. Food and drink budgets are often the first area to be examined - how can savings be realised from cheaper supermarkets or brands? Revisiting home-cooked meals rather than pre-packaged meals is often suggested as a good savings option - and should certainly be considered. Then thinking about energy and fuel costs. What can be done to save in these areas? Many people have recommended personal heated blankets as a viable alternative to heating the entire house for example. Slow cookers and air fryers have been explored as alternatives to using the oven (although we don't recommend a significant outlay to make this a reality if you don't already own equipment. Making sure that lights are turned off when not in use and turning down radiators in rarely used rooms is a clear area of focus. And then comparing the cost of public transport to cars is another key area to be considered.

The iBudge tool is free for users, with only premium features incurring a cost. Please do make the most of the platform - I genuinely hope it offers help to you.

The upsetting truth is that many people have already made these changes - and are still unable to make ends meet. In many countries, further support is available from local and central governments to provide assistance with heating and food payments. No shame should be felt in using food banks, or receiving government grants if this will enable you and your family to get through this period. Simply run a search (Google, Bing etc) for "cost of living support in my area" will likely provide a wealth of information from both the government and from local charities.

Apps like iBudge.com offer the tools to maintain visibility of your budget. Although it is a painful process, we strongly recommend that you keep checking how your income compares to your expenditure on a regular basis. Even if it is getting worse, it is better to be aware of the difference than to be "blissfully unaware" - as that will only make things more problematic in the future. The iBudge tool is free for users, with only premium features incurring a cost. Please do make the most of the platform - I genuinely hope it offers help to you.