10 tips to beat the financial squeeze

Times are already tough for household budgets - but things are getting tougher still.

12:31 07 March 2013

Sterling, which has been falling in value since the start of the year, has taken a further tumble after Moody's downgraded the UK's credit rating from its prestigious 'AAA' rating, to 'Aa1'. As well as being more expensive to buy our foreign currency, a weak pound will affect the nation's pockets in other ways. 

 

For example, as petrol is derived from crude oil (which, in turn is traded in US dollars), prices at the nation's pumps are expected to soar even further. And, as much of our food is also imported from overseas, we can expect to be stung by higher bills at the supermarket checkout too. 

But the Moody's downgrade is also set to push up inflation from its already above-target 2.70% meaning a double whammy for the nation's pockets. So, to help you get even, we've come up with 10 tips help you beat the financial squeeze. 

 

1. Get to grips with your finances 

 

Getting to grips with your finances is a great place to start. Grab a piece of paper and jot down your income versus ALL of your outgoings using your bank and credit card statements to help you. 

 

Because monthly spending patterns can vary considerably due to holidays, birthday gifts and so on, it can be easier to calculate this on an annual basis, rather than a monthly one. You can then subtract these extra yearly costs and divide whatever figure is left by 12 to establish what you really have left to spend each month. 

 

2. Make cutbacks 

 

While you are at it, see what areas you can make cutbacks in. Good ones to concentrate on are gym memberships, lunches out at work as well as morning coffees and weekly takeaways. 

 

3. Slash your energy bills 

 

Most of us are still reeling from the effects of the latest round of price hikes from the Big Six energy suppliers. So if the thought of further price increases fills you with dread, it's worth checking to see whether you are on the cheapest tariff possible. 

 

Our research shows that households could reduce their energy bill by 22% simply by switching to the best deal - an annual saving of £282. Find out more in 'Who should switch to save money on energy bills?'.

 

4. Fill up at the right pump 

 

The price you pay for your petrol will vary depending on where you buy it. But rather than driving around trying to compare prices yourself - and wasting petrol in the process - take a look at PetrolPrices.com which does the hard work for you. 

 

Simply enter your postcode or town and the site will reveal the five cheapest petrol stations in your area.

 

You can also sign up for regular email alerts so you'll always be told when prices change. Users who do this save an average of £2 per fill, according to the site. 

 

5. Get savvy at the supermarket 

 

There are a number of ways you can save money at the supermarket. For a start, don't shop when you're hungry as you'll be tempted to add far more than necessary into your trolley. It's best to go armed with a shopping list and make sure you stick to it. 

 

Also check out mysupermarket.co.uk which compares the cost of your shopping basket at Waitrose, Ocado, Asda, Sainsbury's and Tesco. You can then select the one that's cheapest. 

 

6. Get clever with your commuting 

 

At the start of the year, rail commuters were hit with the 10th above-inflation price increase in a row, making the cost of getting to work even more expensive. Overall, ticket prices rose by 3.9%, while season tickets increased by an average of 4.2%. 

 

The most obvious way to avoid these price hikes is to use a different mode of transport. Perhaps you could start cycling to work? But if this isn't practical, it makes good financial sense to buy a season ticket which will be cheaper than buying daily, weekly or monthly tickets if you travel regularly. 

 

Of course, buying a season ticket upfront is expensive so find out whether your employer offers a season ticket loan. Here, your employer lends you the money and deducts the payments from your salary each month. 

 

Alternatively, paying for your ticket on a 0% purchase credit card will allow you to spread the cost of your payments over a number of months without paying interest. 

 

If your employer is flexible about working hours, it can also work out cheaper to travel during off-peak times rather than peak - but be aware these times vary between train operators. 

 

7. Trim your mobile phone bill down to size 

 

If you thought having a fixed mobile phone contract meant you'd be sheltered from price rises, think again. Operators O2, Vodafone, Orange, Three and T-Mobile have all increased their prices mid-contract, citing rising inflation as the reason behind this. 

 

Unfortunately, most of us won't be able to do much to fight back, but you could ask your provider whether you can buy-out the remainder of the agreement, though this could prove expensive depending on how far into your contract you are. 

 

Some operators will also allow you to downgrade your tariff if you're paying for more than you're using. 

 

Otherwise you'll have to wait it out and as soon as your contract ends, get switching to a cheaper deal. If you're happy with the phone you currently use, consider a SIM only deal. 

 

Visit our mobile phones channel to compare your options. 

 

8. Order your travel money in advance 

 

To avoid being stung further by a falling pound, if you're planning a holiday in the near future, it might pay to buy your foreign currency now. Find out more about this in Mark Hooson'sarticle.

 

9. Switch to a better savings account 

 

Rising inflation and falling interest rates are a terrible combination for savers. With the Consumer Prices Index (CPI) at 2.70%, basic rate taxpayers need a savings account paying at least 3.39% to beat inflation, while higher rate taxpayers need an account paying at least 4.51% and additional rate taxpayers 5.41%. 

 

The bad news is there are currently no standard easy access accounts that pay rates this high. So your best bet is a cash ISA as you won't pay tax on the interest you earn. But even here, only six easy access cash ISAs and one fixed rate ISA beat inflation. 

 

The very best option is the BM Savings three-year fixed-rate ISA but you'll need to have a balance of £50,000 in an existing cash ISA to benefit fully. 

 

If you transfer over this balance to the BM Savings account, you'll receive an annual interest rate of 2.80%. If your balance is lower than this, you'll receive a rate of between 2.60% and 2.30%. Find out more in Melanie Wright's article.

 

10. Think about your annuity 

 

Rising inflation also eats into retirement income. So, if you're planning to buy an annuity - a guaranteed income for life - it's worth considering an inflation-linked annuity which rises in line with the expected increase in inflation. Your income will be adjusted each year to reflect changes in the Retail Prices Index (RPI) measure of inflation - currently 3.30%. 

 

However, be aware that choosing an inflation-linked annuity means you'll get a lower initial income - potentially two-thirds of one without index linking. 

 

To ensure you get the best rate possible for your annuity, always shop around rather than simply buying it from your pension provider. Find out how a new code of conduct is set to offer improved guidance to those buying annuities here. 

 

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.