Vulnerable families continue to face increasing financial pressure due to the rising cost of living, and disposable income seems to be an increasingly rare luxury. Money-saving website Savoo has delved into historical data to find out how disposable income has evolved over the last 35 years. Their research reveals that if salaries had actually increased in line with inflation since 1987, Brits would be £25,397 a year better off.
In the absence of an inflation-beating pay rise, what can you do to weather the current storm?
How have average wages evolved since 1987?
|
Year |
Cumulative inflation from 1987 |
Actual disposable income (per year) |
Inflated disposable income (per year) |
|
1987 |
4.15% |
£19,221 |
£19,221 |
|
1997 |
2.20% |
£23,373 |
£30,031 |
|
2007 |
2.39% |
£30,506 |
£38,961 |
|
2017 |
2.56% |
£30,384 |
£51,785 |
|
2020 |
1.74% |
£31,464 |
£56,861 |
The table shows that the average disposable income was £19,221 per year in 1987 and that by 2020, it had increased to £31,464 per year.
However, if wages had risen in line with inflation, the average disposable income would have been £56,861 per year by 2020. This means that we’re £25,397 less well off annually.
What can you do to remain financially resilient?
Here are five steps you can take to limit the impact of the rising cost of living.
1. Cut back on life’s pleasures
However you may feel about cutting back on luxuries, it’s important to understand that these are challenging times, and the chances are high that they will yet get tougher. Take heart knowing you’re not cutting back on life’s pleasures indefinitely. Cutting back in the short term could help you build lasting financial resilience and attain financial security.
Savoo’s research reveals that the price of some life pleasures has, in fact, risen by more than inflation. Let’s take a look at the price of a cinema ticket as an example.
|
Year |
Average cost of a cinema ticket |
Cost based on inflation |
|
1987 |
£2.15 |
£2.15 |
|
1997 |
£4.07 |
£3.36 |
|
2007 |
£5.05 |
£4.36 |
|
2017 |
£7.49 |
£5.79 |
|
2020 |
£6.75 |
£6.36 |
|
Overall % Increase |
214% |
196% |
What does this mean? The price of many luxuries rises faster than the rate of inflation, making them unrealistically expensive. Cutting back on luxuries temporarily might free up a good amount of money that can be diverted to essentials.
2. Generate more income
The simplest way to generate income in the short term is to start a side hustle. Consider possible side hustles you’re passionate about, especially those that require zero or minimal initial capital and offer high growth potential. You can start by considering your hobbies or checking out a range of side hustle ideas.
As your finances improve, you can consider longer-term investments like shares. However, keep in mind that investing in shares can be risky, and you could get back less than you invest. It’s always wise to carry out your due diligence and seek professional advice when necessary.
3. Protect your emergency fund
Sometimes, financial pressures can be so overwhelming that you’re left with no choice but to dip into your emergency fund. Though this might make your situation better in the short term, you need to implement measures to protect your savings.
A good example is to increase your sources of income, as indicated above. Additionally, each time inflation rises, you may need to increase your savings by the same percentage to ensure your savings match the current cost of living.
4. Check whether you qualify for any government benefits
If you’re eligible, it’s always a good idea to claim the government benefits available to you. They can help ease financial pressures, making it easier to build financial resilience.
5. Review and compare your insurance providers annually
It’s recommended that you review your insurance deals annually, including home and car insurance providers. The same applies to utility providers, such as phone, broadband and energy companies. The chances are high that you’re not on the cheapest possible deal, meaning you’re missing out on an opportunity to save money.
Was this article helpful?
YesNo
About the author
Victor is a freelance writer who loves to read and write about personal finance and related disciplines with the aim of educating people to make better financial and investment decisions.
Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.
