How could the cost of living surge affect your life plans?

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How could the cost of living surge affect your life plans?

In the past few weeks, you’ll have noticed that the cost of many goods and services has been rising. Due to the war in Ukraine and the pandemic disrupting global supply chains, the price of groceries, fuel, and utilities have all increased and could go even higher. Recent analysis published by iNews shows that the average price of dog food is almost 17% higher now than it was at this time last year, while fresh beef is up by more than 11% and savoury snacks have increased in price by almost 12%. And, according to figures published in the Guardian, more than three-quarters of Brits are worried about the rising cost of living. This is very understandable, as if you aren’t careful it can cause serious problems for your long-term plans. If you want to know more about how this could affect you and your progress towards your life goals, read on.

The rising cost of living could make it more difficult to afford a mortgage deposit

When you’re young, you have several major life milestones to look forward to in a few short years, and one of the biggest ones is buying your first home. Of course, if you want to be able to reach this goal then it’s important to carefully manage your finances, building your wealth over time with careful saving and investment. But that can be tricky when your monthly outgoings rise much more quickly than your earnings. As we discussed in another article, the coronavirus pandemic and war in Ukraine have pushed up the cost of many different goods. Most notably, they’ve caused the price of food and fuel to increase sharply. According to data from the Office for National Statistics, the Consumer Price Index measure of inflation rose to 9% in the year to April 2022. This is more than four times the Bank of England’s annual target of 2%. This can pose a serious problem for your finances as the rising cost of living means that it can be harder for you to build your wealth. This means that reaching goals, such as affording a mortgage deposit, is much more difficult. In addition, despite the problems posed by the pandemic, house prices have enjoyed strong growth for several months. According to the Guardian, the average home now costs around £289,000, which is 10.5% more than it did just 12 months ago. Consequently, it’s likely that a 5% or 10% deposit now will require you to save more than you would have a year ago. With property prices at such a high level, having a large enough mortgage deposit is more important than ever if you want to secure a loan. But with the rising cost of living, it can be increasingly difficult to grow your wealth enough to afford one.

If inflation erodes the real value of your wealth, you may have to delay your retirement

In the long term, one of the biggest financial goals you’re likely to have is a comfortable retirement. After a life of hard work, you deserve to spend more of your time relaxing and enjoying yourself. That being said, the rising cost of living can also pose a problem here too, as it can make it more difficult for you to put money aside for your future. Furthermore, if this period of high inflation continues, it could be very difficult for you to build your wealth effectively, as it affects the real returns of your investments. This can mean your assets may need to work harder if you want to reach your retirement goals. To put it simply, even if your investments are showing a decent rate of growth, high inflation could reduce their returns in real terms. For example, if an asset grows in value by 10% while the cost of living increased by 9%, then its real growth is only 1%. If this period of high inflation continues, your portfolio may not be growing as effectively as you need it to. This may mean that you have to reassess your retirement plans, such as by either delaying it or settling for a less comfortable lifestyle than you desire.

Working with a planner can help to ensure you’re still on track to reach your goals

If you want to ensure that prolonged high inflation doesn’t affect your long-term plans, seeking professional advice can really help you. For a start, if you want to minimise the impact that the rising cost of living could have on your finances, a planner can offer useful advice on how to budget effectively. Doing so can help to reduce the effect that rising prices has on your wealth. Furthermore, they can also offer invaluable advice if you want to change your investing strategy so you can continue to see growth in real terms. While raising your risk tolerance can help you to see greater returns, it’s important to ensure your investing strategy is right for you. This is where working with a planner can benefit you, as they can act as a useful sounding board before you make a decision. Seeking expert advice can help you to build your wealth and progress towards your long-term goals, no matter what obstacles stand in your way.

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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 item was correct at the time of writing and the information contained may no longer be up to date.

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