The cost of living crisis – how do we budget?

The cost of living crisis is currently on everyone’s mind (at least in the UK) because we are just getting used to the fact that our energy prices have increased, we are in a recession and now the mini budget. I am sure everyone is wandering how the cost of living crisis is going to affect them and how they should adjust their budgets. On top of all this, the stock market has been playing buggers and if your pension is invested, now is not the time to touch your investments.

As a budget conscious person, I am also taken back about how much else I can adjust my budget because you can only cut down so much. Now is the time to start thinking about ways to make more money than just cutting down. I shared a video a while ago about what I am doing to prepare for a recession and I am glad I had been thinking about this as it became obvious that we would be entering a recession. Now with the cost of living crisis, how does the mini ‘government’ budget impact you?

*Disclosure: This is a collaborative post

The cost of living crisis – how do we budget

Budgets always get a bad rep but they are such an important tool when managing your personal finances. It helps you become better with your money and helps you develop better money habits and became a saver mindset. During the time of recession, your budget is your best friend, it allows you to understand where your money is going, where to cut back and also helps you develop better money habits. I am not saying a budget is a fix all tool but it is a great start because if you know how much you making, where you spending the majority of it, you can make changes as you see fit.

The entire country is talking about the cost of living crisis, some have been impacted more severely than others and the bad news is this will only get worse before it gets better. I hate being a Debbie-downer but this is how these things work and we need to be smart with our finances in the interim. Implement simple things like reducing or completely cutting out takeaways, set specific times when you have your heating on, cook more meals at home and in bulk and don’t be ashamed to shop the sales section. If possible, lock in your mortgage and energy bills into ‘fixed rates’ at least for the next 2-5 years.

How does the mini budget impact me?

I am sure everyone is wandering how will the mini budget impact me? From face value, it looks like it has been designed to cater to the rich and screw the lower class. But as an optimist, I am trying to find the medium or the positive impact this might have on me in the near future. Below I will discuss at a high level a couple items in the mini budget;

Stamp Duty

This is the tax that homebuyers in the UK pay the government for buying a house. During 2020-2021, the government implemented a stamp duty ‘levy’ until Oct-2021. During this time, a lot of people rushed to buy houses as they did not need to pay stamp duty (although for second time buyers, you still pay a 3% fee). This time round, there is no time limit and they have increased the house price limit that permits you not to pay stamp duty from £125k to £250k which is great news for some but with the rising interest rates due to the recession, its not all glitter.

Tax

This one I found really fascinating because if you are a basic tax rate payer you will pay 19% tax instead of 20% and for additional tax payers, they no longer need to pay 45% tax over any £150k they make. This has raised some eyebrows as even though the basic rate tax payer is getting ‘some relief’ the additional tax payer is getting an even bigger slice back into their pockets. Let’s not even forget about the national insurance which the government increased earlier in the year will be reversed back to its original amount later this year.

Business Tax Cuts

Originally it was planned that the corporation tax would increase from 19% to 25% obviously this felt like a dig at business owners and entrepreneurs but now its seems they have reconsidered their stance. As a small business owner this is obviously great news to know that well, nothing is changing in terms of corporation tax.

Obviously, the government’s message is that the UK is open for business and is ready for economic growth but for many, this is not the help they required. Future changes are great but we have the problems today that many people need help with and that’s where I think people want the governments help on more. I don’t know when the recession will continue together with the cost of living crisis so we need to change our spending habits and maybe look for ways to make more money.