How to get a step ahead of rising living costs

4 min | 4 April 2022

The Chase team

Recent events could mean real take-home pay for a typical UK household could be worth £1,000 less in 2022 than in 2021, according think tank to the Resolution Foundation. Things are not looking easy for 2022.

“There is no way to sugar coat it. The cost of living hasn‘t been this high in 30 years and it’s likely to get worse before it gets better,” says Annabelle Williams, personal finance specialist at savings and investment company Nutmeg.

Understanding different inflation measures

There are two main measures of inflation on the cost of living: the consumer price index (CPI) and the retail price index (RPI). The Office for National Statistics publishes both monthly.

The CPI measures the change in the average price of a “basket” of around 700 goods and services bought by the average consumer. The RPI measures consumer price inflation of those retail goods and services, plus mortgage interest rates and rent, which means it has historically been higher than CPI.

The government tends to link its budget spending to the CPI rate. This means government spending on things like the state pension and statutory sick pay are not always aligned with the true cost of living.

The impact on pensions depends on whether they are tied to RPI or CPI. Williams points out that people with pensions linked to RPI have historically received higher annual increases to their payments than those linked to CPI.

Whichever way you measure it, the cost of living is going up. Our experts offer their tips on how to reduce the impact:

Fix your mortgage

“If you have a tracker or variable-rate mortgage that’s coming to the end of its term, now may be the time to consider switching to a fixed-rate deal. Double check the features of your current deal versus a new one before making the decision to switch.”

Annabelle Williams, personal finance specialist, Nutmeg

Buy in bulk; sometimes it pays off

“If the price of items goes up over time, buying lots at one point in time will save money in the long run, even if you spend more than you want to right now.”

Ryan King, founder, Making Money Simple

Fine-tooth comb your statements

Question every Direct Debit. “For instance, don't auto-renew insurances, or mobile phone contracts, and with utilities there could be room to negotiate with your existing suppliers. Don’t automatically do anything. Think it through first.”

Simonne Gnessen, Wise Monkey financial coaching

What can you do about rising energy costs?

"In the current energy climate, sticking with a variable-rate tariff is likely to be the best option for many. This is because the energy price cap limits how much suppliers can charge customers on variable tariffs, but the cap doesn’t limit how much suppliers can charge for fixed tariffs. Right now, staying on a variable tariff is likely to be the cheapest option. However, this situation can quickly change particularly when the new price cap is in effect, so make sure you research what fixed-rate tariffs are available on a regular basis to see if there are any that offer a good deal."

Rhiannon Philps, personal finance expert, Nerdwallet

Monitor your spending

“There are now plenty of personal finance apps available that allow you to track your spending and can help identify unnecessary spending habits and where price rises are hurting most. This can be particularly useful as you reach retirement and undergo a lifestyle change.”

Gavin Haynes, investment consultant and co-founder, Fairview Investing

“While budgeting won’t make the cost of essentials go down, it can make higher prices easier to manage. By seeing what you’re spending, you may be able to reduce expenditure in one area to free up more money for another, or even save. For example, check your Direct Debits and cancel any for products and services that you’re not using.”

Annabelle Williams, personal finance specialist, Nutmeg

The new way to bank

Get to know the Chase current account. It's packed full of rewards and clever features that we think you'll love.

Explore the account