The volatility and uncertainty created by two global catastrophes has led to the cost-of-living crisis. Is it possible to lessen the effects on your finances?

There are few individuals who will be immune to the current cost-of-living crisis. Inflation is reaching record levels for modern times; energy bills are soaring and stock markets are volatile. And just as the world emerges from a global pandemic, war in Ukraine is causing huge uncertainty.

Keith Brooks, a chartered financial planner with Aberdein Considine, says the cost-of-living crisis will affect everyone. “The people that are really going to be punished are those that have perhaps retired in last couple of years and don’t have any guaranteed income. They

are accessing pension money at a time markets are taking a dip too. It’s a really tricky time and I don’t see it getting better in the short term,” he says.

Brooks explains that markets can deal with one shock, but in recent times it has faced Covid-19 and war. Despite this situation, Brooks believes clients can cope financially if they look longer term.

“Clients are concerned, but you should take a long-term view on any of these things. If any client comes to me and wants to invest, I say they should be thinking about it in at least a five-year cycle in terms of markets. If clients are thinking about these things over the long term it’s not as much of a concern,” he says.

His advice to people is to make sure they know what their money is invested in and ensure that it is performing as well as it can. “You really need to be in stocks and shares and take a long-term view. But that does require some tolerance for risk,” says Brooks. “If a client was to approach me, I’d be making sure they are going into a properly diversified portfolio.”

He adds: “One way to reduce volatility is to invest over a period, on a monthly basis, rather than in one lump sum. For those that are cautious, that’s a much more palatable way to enter the markets.”

Graham Clark, chief executive officer at Anderson Strathern Asset Management, agrees that it’s wise to take the long view. In terms of the impact of the pandemic he says that while it brought a lot of short-term noise to financial markets, it may be the best approach to ride out the storm and not make any sudden knee-jerk movements.

He says: “The pandemic has changed people’s views and priorities on lifestyle, retirement plans and inter-generational planning – and as a result clients are now taking a closer look at their savings and pensions.

“It has made people re-prioritise what they want to spend money on or save for. We are seeing clients having more long-term outlooks and being more aware of the importance of having those ‘rainy day’ funds.

“Now that things are returning to normality, we are seeing an increase in spending on holidays and events rather than purchasing items. We are also seeing an increase in those undertaking big house renovations such as extensions that they may have been putting off and things such as replacing cars are becoming less of a priority.

“The pandemic was an unforeseen event that nobody could possibly have planned for but having a sound long-term investment strategy with good diversification across asset classes, sectors and geographies ensures you are better positioned when these events do crop up.”

Daniel Hough, financial planner at wealth manager Brewin Dolphin, has tips for people on how to navigate the cost-of-living crisis. “While it may not be the most exciting task, using an expenditure calculator is very important. Knowing where your money is going on a monthly or annual basis is vital and can help you make much better-informed decisions about where savings could be made,” he explains.

“Paying bills annually rather than monthly may come with small discounts. This is certainly the case with the likes of insurances and streaming services, of course bearing in mind how affordable it is to do so. It is also worth an annual check on insurances – whether they are for your home, car, or pet – to see if you can get the same cover cheaper elsewhere.”

He adds that if people have debts, it is best to focus on managing or repaying the short-term ones first. With credit card repayments easily commanding fees of 20 per cent APR, paying them off should be a priority and, if you are having trouble doing so, then balance transfers may be a reasonable option.

“Unfortunately, there are no quick fixes to the rising cost of living. If inflation continues to remain as high as it is, it may even come down to lifestyle changes for the long run,” adds Hough.

Turning to the conflict in Ukraine, people need to be aware of how it has shaken markets and pushed up inflation – which makes advice on achieving financial goals more helpful than ever.

Hough says: “There is a lot for markets to worry about here, with inflation of particular concern to the stocks that had done so well during the pandemic. Many of these ‘growth’ companies are highly affected by interest rates rising and we have seen that in the performance of the tech-heavy Nasdaq index in America since the turn of the year, and likewise with the FTSE 250 mid-cap index in the UK.”

He concludes: “Taking advice is particularly important during times like this. Having a well-balanced, risk-adjusted portfolio that matches your financial goals is crucial to weather uncertain periods, allowing you to focus on the long term and not be overly affected by market swings.”

How to navigate the cost-of-living crisis

Budget – use online banking or mobile apps to regularly track where you are spending money.

  • We are living in uncertain times, so try to add to your rainy-day fund
  • Recognise the harmful impact of inflation on your savings over the medium to longer term. Make sure your savings are working hard to maintain their real value over time.
  • Consider transferring credit card debt taking advantage of 0% interest availability.
  • Making pension contributions may help you to reduce your tax bill
  • Evaluate expenditure – go through direct, standing orders and subscriptions.

Graham Clark, chief executive of Anderson Stathern Asset Management