The cost of living crisis has dominated headlines over the course of 2022.
There are multiple factors that have contributed to the rising prices we are currently experiencing. Crucially, the lingering effects of the pandemic combined with the war in Ukraine have contributed to soaring inflation throughout the west.
Indeed, according to the Office for National Statistics (ONS), UK inflation reached 10.1% in the year to July 2022 – the first time in double digits since 1982. In an attempt to slow the rate of inflation, the Bank of England (BoE) has increased the base rate to 1.75% as of August 2022.
Furthermore, energy regulator Ofgem increased its price cap by 54% in April. According to MoneySavingExpert, the price cap is set to increase by a further 65% in October, sending the average annual energy bill to £3,240. The cap is also predicted to rise again in January 2023.
When you consider the effect of everything that is going on in light of your own finances, you might find yourself feeling anxious. While your circumstances may not be as bad as those worst hit by this rising cost of living crisis, your concerns are not unfounded, nor should they go ignored.
Here are some of the reasons you might find yourself lying awake at night worrying about your finances, even if you have accumulated substantial wealth.
Research shows earning more income does not make people’s worries go away
It is important to have perspective on how the cost of living crisis might affect your finances. While times are stressful, your foundation of wealth should help you weather this storm.
If you are feeling worried, you are not alone. Research from Aegon reveals that 55% of average earners and more than 1 in 3 top earners worry about money.
The study suggests that your “money mindset”, meaning your attitude towards your wealth, can be more influential than the actual wealth you hold. For example, Aegon reports that 38% of the study’s participants have a “vague idea” of where they want to be financially in 10 years’ time, while only 29% had a “specific idea”.
So, if you find yourself lying awake at night worrying about money during the cost of living crisis, it could be constructive to firm up your long-term financial plan. Knowing that you have taken sound steps towards securing your future financial goals should help you to feel more comfortable during these difficult times.
High earners are more likely to fall into debt
According to research published by Money Marketing, high earners are more likely to be in debt than low earners. They are also likely to have borrowed a higher percentage of their income.
What is more, the report claims that the debts of high earners may be more vulnerable to the effects of the cost of living crisis. This is because high earners are more than twice as likely to have variable-rate debts than low earners.
If you have taken out loans in recent years, you may already have noticed that your repayments are climbing every month. This might have a significant effect on your financial viability in the short term – all the more reason to focus on your long-term goals with the help of your financial planner.
The more assets you hold, the deeper the potential impact of the cost of living crisis
Your assets and expenditure could begin to feel like “golden handcuffs” while prices continue to rise.
Aspects of your monthly or annual expenditure that could be affected include:
- The maintenance and upkeep of a large home or multiple homes
- Your mortgage or mortgages, especially if they are on a tracker- or variable-rate
- Your energy bills across all the properties you hold
- Stock market investments that could be experiencing volatility
- School fees, which may have increased in the last year
- Support for adult children, such as help paying student loans or rent.
These could be considered “non-negotiable” expenditures that might all be increasing at once. In this instance, it is understandable that you may worry about your regular outgoings, even if you have accumulated substantial capital.
You could be missing out on valuable tax relief
Fortunately, as a high earner, there are valuable reliefs you can access that might help even out the high cost of living.
Research conducted by PensionBee found that between the 2016/17 and 2018/19 tax years inclusively, high earners missed out on approximately £2.5 billion in pension tax relief.
As you may already know, higher and additional-rate taxpayers can receive up to 45% pension tax relief when they file their earnings through self-assessment. If you are concerned about how rising costs will affect your financial viability, capitalising on these reliefs is more important than ever.
Cashflow modelling can provide reassurance in trying times
Luckily, despite the challenges brought on by the cost of living crisis, we can help.
Using cashflow modelling, your financial planner can help you visualise what you can afford today, perhaps enabling you to take steps towards protecting your financial future, too.
Although times are tough, working with an expert can help soothe your doubts and remind you that your wealth can withstand these choppy waters.
Get in touch
If you are worried about money at the moment, you do not have to do it all alone. At Bowmore Financial Planning we put your goals first, helping you get the most from your wealth, no matter the economic circumstances. Whether it’s reviewing your pension growth, aligning your investments with your tolerance for risk or putting plans in place to take care of the next generation, we can help.
For support and guidance you can trust, email enquiries@bowmorefp.com or call us on 01275 462 469.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
Bowmore Financial Planning is not regulated to provide mortgage or tax advice.
Bowmore Financial Planning Ltd is authorised and regulated by the FCA.
