When prices rise across the board, you feel it everywhere at once. The same trolley of food costs more, the energy bill creeps up and filling the car takes a bigger bite out of payday. If your income has not kept pace, your money simply goes less far than it used to.
You cannot control the economy, but you can control how your household responds. This guide explains what is going on in plain English, then walks you through some practical steps to protect your budget.
What rising prices really mean for you
Inflation is the rate at which prices in general are going up. When it is high, a pound buys less this month than it did a year ago. The headline figure on the news is an average across hundreds of everyday goods and services, from bread to bus fares.
Your own experience might be quite different from that average. Someone who drives a lot and heats a large, draughty house will feel rises in fuel and energy far more sharply than someone who walks to work from a small flat. That is why it pays to look at your own spending rather than the headline number.
Why your pay can feel smaller even when it has not changed
You might hear people talk about "real" wages. That just means your pay once rising prices are taken into account. If your wages go up by less than prices, your real income falls, even if the figure on your payslip stays the same or nudges up. Benefits and the State Pension are normally reviewed once a year, so they can lag behind rising costs for a while too.
Step 1: Find out where the squeeze is hitting
Pull up your last three months of statements and, if you can, compare them with the same months a year earlier. Look for the categories that have jumped the most. For most of us, that is food, energy, transport or anything linked to an interest rate.
Once you know the pressure points, rewrite your budget so it reflects today's prices, not last year's. Our guide to the key numbers in your budget shows you how.
Step 2: Protect the essentials first
When money is tight, rent or mortgage, energy, council tax and food are the essentials to cover first, because falling behind on these can have serious consequences. If you are struggling to keep up, get in touch with the company straight away. Many suppliers have support schemes or can agree a payment plan, but they can only help if they know there is a problem.
Step 3: Trim the costs you can change quickly
- Cancel subscriptions you no longer use, or take turns with them so you only pay for one or two at a time.
- Check whether your phone or broadband contract has ended. Out-of-contract customers often pay more than they need to.
- Shop around when insurance renews instead of accepting the first price you are sent.
- Try own-brand groceries and plan your meals to cut down on food waste.
- Combine car journeys and keep your tyres at the right pressure to help your fuel go further.
Step 4: Check what your savings are earning
When prices are climbing fast, money sitting in an account that pays little or no interest slowly loses value. If you have savings you will not need straight away, it is worth checking what rate your account pays and what else is available. Keeping some money in easy access for emergencies still matters, though. Rising prices make a rainy-day buffer more important, not less. If you are wondering whether to use your savings to plug a gap, read using savings or borrowing first.
Step 5: Go carefully with credit
When inflation is high, the Bank of England often raises interest rates to bring it back down. That can make borrowing more expensive, especially on variable-rate debts and new credit. Using credit cards or overdrafts for everyday bills can quickly snowball, because the gap is still there next month with interest added. Planning ahead for the bills that only come once a year, as set out in our guide to expense planning, can help you avoid leaning on credit at all.
This article is general information, not financial advice. If rising costs mean you cannot cover the basics, you are far from alone and free, impartial help is out there. Citizens Advice can check whether you are missing out on benefits or grants, and MoneyHelper has free budgeting tools and guidance. If debts are starting to pile up, talk to StepChange before things get harder.
