Any tips for living in a high rates/inflation world?
Discussion
Like lots of people my adult/working life has all been post the 2008 financial crisis & i've only really ever known a world with rock bottom rates & minimal inflation.
I can read the doom & gloom in the news but i've realised I don't really know what to expect, how exactly this is likely to impact my normal life, how I can best protect/benefit my family etc. Last year I fixed my mortgage until 2026 but that's about it.
I know there's probably many people reading who have experience of the 90s/80s & before - can anyone offer any advice on the sort of things that we should expect/look out for, or how you navigated it successfully/unsuccessfully?
I can read the doom & gloom in the news but i've realised I don't really know what to expect, how exactly this is likely to impact my normal life, how I can best protect/benefit my family etc. Last year I fixed my mortgage until 2026 but that's about it.
I know there's probably many people reading who have experience of the 90s/80s & before - can anyone offer any advice on the sort of things that we should expect/look out for, or how you navigated it successfully/unsuccessfully?
It's a good question and I have been thinking something of the same.
Long term, while it might feel painful in the moment, if the value of money is changing due to inflation then any existing borrowing reduces in real terms by a lot over time. In this way a big mortgage today becomes a small one tomorrow even if the number stays the same. This is good.
It also seems as though holding assets is good and tech stocks are bad. I can see a move back towards BTL despite the tax changes that have occured over the last 5 years as people take a break from the stock market and look to property instead. We could see the upwards trend on house prices continue.
The only advice I have given myself is to get the best payrise I can possibly get every year. As ultimately this is the only defense that we actually have.....
Long term, while it might feel painful in the moment, if the value of money is changing due to inflation then any existing borrowing reduces in real terms by a lot over time. In this way a big mortgage today becomes a small one tomorrow even if the number stays the same. This is good.
It also seems as though holding assets is good and tech stocks are bad. I can see a move back towards BTL despite the tax changes that have occured over the last 5 years as people take a break from the stock market and look to property instead. We could see the upwards trend on house prices continue.
The only advice I have given myself is to get the best payrise I can possibly get every year. As ultimately this is the only defense that we actually have.....
OnTheBreadline said:
If interest rates are going up then surely one of the best things to do is overpay your mortgage as much as possible?
I disagree - Better saving/investing any surplus capital as you can still call on it if required. Once it goes into the mortgage, very hard to get it back out.That's pretty impossible to say without knowing your personal financial circumstances.
If you can afford a few holidays a year and spend a fair chunk on 'nice' stuff/hobbies...then you might have to cut back here and there, but otherwise you'll be fine.
If you're mortgaged up to the max, have credit card debts and a brand new BMW on the drive with no savings...then you're going to struggle I'd say. The best you can do in this situation is shop in Lidl/Aldi (nothing wrong with that at all...they have really nice food often better than the big 4, but it's a lot cheaper) and maybe go through your monthly outgoings to see what can be scrapped... such as phone contracts, sky, Netflix etc etc. It's surprising how these little monthly outgoings add up!
If you can afford a few holidays a year and spend a fair chunk on 'nice' stuff/hobbies...then you might have to cut back here and there, but otherwise you'll be fine.
If you're mortgaged up to the max, have credit card debts and a brand new BMW on the drive with no savings...then you're going to struggle I'd say. The best you can do in this situation is shop in Lidl/Aldi (nothing wrong with that at all...they have really nice food often better than the big 4, but it's a lot cheaper) and maybe go through your monthly outgoings to see what can be scrapped... such as phone contracts, sky, Netflix etc etc. It's surprising how these little monthly outgoings add up!
Broadly speaking.
- Spend less
- Save more
- Do this even if right now you're fine
- Try and have an emergency fund as high rates and high inflation means your employer is possibly also going to face challenges
- Invest spare income via low cost diversified global funds
- ^^ should be a long term thing so do homework to understand tax wrappers and your attitude to risk etc.
- Cash in the bank is a drag as it's usually losing money to inflation over the long term (but it may perform better than stocks in the short term)
- Try and ensure you have skills that are in demand
Ultimately the nuclear option is sell up and move somewhere cheaper. Let's face it whichever govt is in power (and it's looking like it might be Labour) will not have the balls to cut up the inflationary credit card and will continue to print away the currency. Colleagues of mine moved to Singapore before the Credit Crunch in 2007. Sold their flat and up sticks. In FX terms alone their assets are up 50%.
Three things I suggest:
1) set up a spreadsheet that details every single one of your expenses, and update it regularly. Reconcile it to your bank account/card statement so nothing gets missed. I'm amazed how many people don't really know how much they are spending. My daughter, for instance, said "Dad, where is all my money going?" She followed my advice and can now see that she spends stupid amounts of money on take-aways and Costa/Starbucks coffees.
2) review and prioritise your spending, having done the spreadsheet. We did this with my sister in law a while ago and realised she had a BT Sport and a Disney+ subscription even though she never watched either.
3) shop around. A mate of mine never, ever bothers to use comparison sites for his car insurance. He actually said to me "I thought they had to offer you the best deal, don't they? So I just auto-renew." He'd also never heard of websites like Money Saving Expert, didn't earn any loyalty points (apart from Air Miles) and certainly had no idea what a cash back site was. "Discount codes? What are they?"
1) set up a spreadsheet that details every single one of your expenses, and update it regularly. Reconcile it to your bank account/card statement so nothing gets missed. I'm amazed how many people don't really know how much they are spending. My daughter, for instance, said "Dad, where is all my money going?" She followed my advice and can now see that she spends stupid amounts of money on take-aways and Costa/Starbucks coffees.
2) review and prioritise your spending, having done the spreadsheet. We did this with my sister in law a while ago and realised she had a BT Sport and a Disney+ subscription even though she never watched either.
3) shop around. A mate of mine never, ever bothers to use comparison sites for his car insurance. He actually said to me "I thought they had to offer you the best deal, don't they? So I just auto-renew." He'd also never heard of websites like Money Saving Expert, didn't earn any loyalty points (apart from Air Miles) and certainly had no idea what a cash back site was. "Discount codes? What are they?"
Buy and horde any non perishable or long best before date essentials.
Deodorant, shampoo, bin bags, toothpaste, washing liquid, tissues etc.
Ketchup, Coke, Beer, Marmalade, Coffee etc.
Doesn't matter if you've got them and the prices don't go up too much then you are still going to use them. If they sky-rocket (the favourite for that possibly being coffee.) you've saved a little bit cash by buying early.
Buy the multi pack bags of crisps and snacks. Which sounds obvious but you will be surprised how many people will £1.00 for a bag of crisps when buying them in bulk works out much cheaper.
Deodorant, shampoo, bin bags, toothpaste, washing liquid, tissues etc.
Ketchup, Coke, Beer, Marmalade, Coffee etc.
Doesn't matter if you've got them and the prices don't go up too much then you are still going to use them. If they sky-rocket (the favourite for that possibly being coffee.) you've saved a little bit cash by buying early.
Buy the multi pack bags of crisps and snacks. Which sounds obvious but you will be surprised how many people will £1.00 for a bag of crisps when buying them in bulk works out much cheaper.
Also apparently we need to cook on a straw box stove or something, get a one cup kettle, and remove unnecessary weight from our cars....back seat, passenger seat, etc.
I do ask this regularly though - surely inflation can only inflate our debt away if our wages increase at least at the same rate as inflation?
Otherwise we still owe X mortgage but we have to soend more disposable on immediate costs leaving us worse off?
I do ask this regularly though - surely inflation can only inflate our debt away if our wages increase at least at the same rate as inflation?
Otherwise we still owe X mortgage but we have to soend more disposable on immediate costs leaving us worse off?
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