The cost of living in Britain today is soaring. A basket of goods at the supermarket costs 15% more than last year, petrol is now well over 110p a litre, and energy bills could rise by a further 40% this year.
Small wonder then that even some middle income households are struggling to make ends meet.
If you’re among the growing number of household’s feeling the pinch, you have two options: Drastically increase your income overnight, or trim the fat from your budget so that you can safely absorb these price hikes.
Cutting costs is not hard
Achieving the former will prove extremely difficult (within the confines of the law, that is), so let’s focus on the latter instead.
Cutting costs needn’t be a painful exercise. Most of us waste a significant amount of money every month by either buying things we don’t need, or paying too much for the things we do.
Target these five areas for savings and you can easily shave £100s off your budget.
#1: Energy
As we mentioned at the start, energy prices could rise by as much as 40% this year, pushing the average household’s energy bill well beyond £1,300 a year. Clearly this is a great place to start looking for potential savings.
With suppliers constantly reshuffling their prices, the only way to achieve a significant (and lasting) saving on your energy bills isn’t by switching supplier at all, but by switching tariff.
Customers who sign up to an online tariff and pay by direct will consistently save around £170 a year compared to those on a standard tariff who pay on receipt of bill.
Yet despite the savings on offer, a survey by price comparison site uSwitch a few months ago found that only one in eight households have done so.
Potential monthly saving: £15
#2: Travel
The cost of running a car has increased by 56% in the last ten years, with motorists now spending £2,197 a year just to keep their car on the road. And with the government imposing ever more “green” taxes on motorists, and the price of fuel showing no sign of abating, the cost is only likely to increase.
Handy though it may be, the truth is that owning a car makes little financial sense. If you own two or more cars, give serious thought to ditching one of them.
The impact on your lifestyle should be minimal, but the savings will be significant. You may want to consider joining a car club for the rare occasions where you really need a second car.
Also, if you live close enough, why not cycle to the office and kill two birds with one stone? Not only will you save on transport costs, but with the extra exercise you’re getting you can ditch that £50-a-month gym contract as well.
Potential monthly saving: £187
#3: Food
A basket of goods at the supermarket now costs 15% more than a year ago, with the average family spending nearly £800 a year more on food.
Short of switching to a diet of bread and water, the best way to significantly reduce your grocery bill is to take a step down the supermarket chain. So if, for example, you shop at Marks & Spencer, peruse the aisles of Sainsbury’s instead.
Many shoppers have already done this, with discount supermarkets like Aldi reporting a 25% increase in customers in the last three months compared with a year ago.
The products on offer are largely the same (give or take a few brand substitutions) and you can save yourself a fortune – Aldi says its prices are 20-30% lower than the big supermarkets. Considering the average family of four spends £100 a week on groceries (according to shopping comparison site mysupermarket.co.uk), that means you could save up to £130 a month by shopping at a discount supermarket instead.
Of course, supermarkets only make up part of the money we spend on food. Takeaways are great for when you just can’t be bothered to cook anything, but they are expensive. Reduce the amount of times you eat out or get takeaways and you’ll be better off for it (both financially and nutritionally).
Finally, change your eating habits at work. Bringing in lunch from home and skipping that daily Starbucks coffee will result in a significant saving over time.
Potential monthly saving: £200
#3: Debt
As a general rule, you should never try and save money if you have any debt (excluding your mortgage). Why? Because debt will almost always earn interest at a far higher rate than savings – it’s how banks make their money.
Consider the following: The top fixed rate savings account on the market today pays 7% interest, but the average APR on a credit card is 17.35%.
Speaking of which, you should make use of 0% balance transfer credit cards to pay off your debt more cheaply. Switching £3,000 debt to the Virgin Credit Card and paying it off over a year would save you £200.
Potential monthly saving: £17
#5: Contracts
Just think about how many contracts you’re signed up to. Broadband, phone (land line and mobile), TV, car insurance, home insurance… the list is endless. How many of these are you confident you’re actually paying the lowest possible price for?
Taking the time to shop around before buying/renewing any contract could save you an absolute fortune - according to Sainsbury’s Bank, doing so could save you £180 on your car insurance alone.
Price comparison sites are a great way of comparing deals on the market with a minimum of effort.
Potential monthly saving: £33
Prudence the key during the credit crunch
During the recent years of economic growth and easy credit, many of us have become complacent about our finances.
While the credit crunch is obviously a worry, for most of us the only thing we need to do to protect ourselves is spend more prudently.
As a case in point, none of the tips mentioned above require any significant change to your life, but they could save you as much as £450 a month.
