Tips to Protect Your Personal and Business Finances
As inflation rates in the UK fluctuate an overall rise in prices for goods and services reduces the purchasing power of money. Consumers and businesses alike need to take active steps to protect their financial health. The effects of inflation are not always steady and can influence households and businesses differently depending on the economic climate.
Below you'll find practical and current suggestions for managing both personal and business finances during periods of inflation. Be sure to check official resources such as gov.uk (see Resources below) for the most recent updates.
How Inflation Affects You
For households, inflation often results in rising costs for essentials, including food, energy, transportation, rent, and mortgage payments.
While mortgage rates aren’t directly set by inflation, they may increase if the Bank of England raises its base rate to address inflation.
Businesses, on the other hand, may see higher costs for supplies, utilities, logistics, and staff wages, making cash flow management and strategic planning more complex.
Tips for Individuals: Managing Personal Finances
Revisit Your Budget
Go over your expenses and look for opportunities to cut non-essential spending. Ensure essentials remain your top priority.
Make Smart Shopping Choices
Take advantage of promotions, rewards programmes, and price comparison tools. Buying frequently used items in bulk and choosing supermarket own-label products - typically less expensive than branded versions - can help reduce costs.
Assess Subscriptions and Debt
Review and cancel any subscriptions or memberships you don't regularly use. If considering debt consolidation, be aware that this may not fit everyone's circumstances and could involve extra fees or lead to longer repayments. Free, impartial advice is available from StepChange, National Debtline, or Citizens Advice.
Build Up an Emergency Fund
While a fund covering three to six months of expenses is ideal, this might not be immediately achievable for everyone - especially during high inflation. Even a modest emergency fund can help you avoid relying on costly credit if an unexpected expense arises.
Safeguard Savings
Standard savings accounts may not keep up with rising prices, eroding your savings' value over time. In the UK, NS&I Index-linked Savings Certificates aren't available to new savers as of June 2024.
An alternative could be inflation-linked gilts-UK government bonds that adjust returns according to the Retail Price Index (RPI) - usually accessed through investment platforms or funds. Keep in mind these investments carry risk, your capital is at risk, and they're not protected by the Financial Services Compensation Scheme (FSCS) like cash savings.
If you're unsure, consult a financial adviser who is authorised by the Financial Conduct Authority (FCA). The FCA Register allows you to verify advisers' credentials.
Seek Additional Sources of Income
Explore options such as freelance work, side businesses, or monetising a hobby to help buffer your finances.
Tips for Businesses: Dealing with Rising Costs
Go over Expenses
Review all outgoing costs to identify savings. Negotiate with suppliers for better deals and consider alternatives where available.
Adjust Prices Thoughtfully
If you need to increase prices, provide clear communication to customers and offer value-driven options or tiered services to retain their loyalty.
Revise Efficiency
Invest in automation, technology, or process improvements to reduce waste and increase productivity - small changes can yield significant benefits.
Manage Cash Flow Proactively
Focus on prompt invoicing, upfront deposits where suitable, and diligent follow-up on overdue payments. Regularly assess your credit control procedures to decrease the likelihood of late or unpaid invoices.
Assess Debt and Financing Options Carefully
While it's wise to compare lending options, borrowing may be costlier during times of high inflation, since the Bank of England's base rate heavily influences interest rates. Stay updated on rate changes, review repayment terms carefully, and seek advice from an FCA-authorised adviser before taking on more debt.
Support Your Employees
Employees are also feeling the effects of inflation. Open communication and flexible work arrangements can help maintain morale and staff retention.
Government Support and Resources
By June 2024, schemes such as the Energy Bills Support Scheme have ended, but support—such as business rates relief, tax deferrals, or sector-specific grants—may still be available. As support measures shift frequently, check gov.uk or speak to an adviser about current options.
Getting Professional Advice
For financial planning or investment decisions, use a regulated and authorised financial adviser (check their status on the FCA Register). For debt issues, free help is available from organisations including StepChange, National Debtline, and Citizens Advice.