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Why now is the time to create a household budget

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity International

It’s likely that you’ve already started to feel the impact of inflation on your household finances. Prices have been increasing in practically all areas of spending and are rising fastest for essentials like fuel, energy, and food. 

Unfortunately, the government’s Spring Statement didn’t offer any real help for those struggling with this cost-of-living crisis, as National Insurance rates still increased in April 2022 by 1.25%. 

But what does it all mean?

Firstly, what is inflation?

Simply put, inflation is a measure of how the prices of goods and services are changing in the UK. As you may already be feeling, it can have a big impact on your household finances. Inflation is measured as a percentage and compares the cost of a ’basket of goods and services‘ today with the cost of the same items 12 months ago.

There are a number of inflation measures, but the government generally uses the Consumer Prices Index. This has certainly been grabbing headlines lately – it hit a 30-year high at 6.2% in February 2022, up from 0.4% in February last year.*

Overall, you’re likely to see increases in your costs but how much the current headline inflation rate affects your household depends on which products you tend to spend your money on. That’s because not all prices will be increasing at the same rate.

What does the Spring Statement mean for your money?

Chancellor Rishi Sunak has delivered his Spring Statement and with UK households facing the biggest financial squeeze in decades, here’s what it means for you. 

Watch time: 2 minutes 16 seconds

What can we do?

There’s no doubt that we’re all having to tighten our proverbial belts, particularly if we’re not seeing our salaries increase proportionately to the rate of inflation. And, with the standard UK-wide personal tax allowance remaining frozen until 2026 - many will be dragged into higher rates of tax.

Even if you’ve never had to work to a household budget before, it’s more important than ever to have one now. From April, you may see the impact of frozen tax allowances and National Insurance changes affecting your take-home pay – so make sure you know how much you’ll have each month to spend. And tracking your spending across different parts of everyday life will enable you to see exactly where inflation is biting and help you work with or around it. 

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future.

*Source: Office for National Statistics, Consumer price inflation, UK: February 2022, Figure 1: Annual CPIH inflation rate

Creating your household budget

Our simple budget planner can help you to break down your spending and see where your money goes each month.

Take control of your day-to-day

Find out how creating a budget can help you to take control of your finances now and for the future.

The 50/15/5 rule

As a starting point for your budget, you can use our helpful rule-of-thumb to find the right balance between saving and spending.