I have always been careful with money but how do I protect myself now that I am feeling the pinch?

Financial Planning

Q I am working in the private sector on a modest salary but have always been careful with my money and able to manage quite well. However, I am starting to feel the pinch each month and can see my weekly shop going up all the time. Some experts are warning inflation could be more than 10pc in the autumn which makes me nervous. I have a car loan and some small savings, and have a variable mortgage rate. Is there anything I can do to protect my circumstances over the coming months?

A The increasing cost of essential items such as food and fuel has started to have a real impact on everyday living for many. In the short term this will continue to get worse with the ongoing increase in the cost of mortgage repayments and greater demand for fuel in the winter months.

Unfortunately wage inflation is significantly less than consumer price inflation. This is affecting the purchasing power for most people. The main priority should be to maintain your current lifestyle while meeting your financial obligations.

You have entered into agreements with financial institutions for a car loan and a mortgage. A default on these loans can have a significant impact on your future capabilities to borrow and make future borrowing more expensive. So, making any possibility of a default less likely is the correct course of action.

You mention you have some savings, do you have an objective for them? It is good financial planning to try to build three to six months of net salary, place it on deposit and classify it as an “emergency fund”. This will not keep up with inflation and will return little interest, but is meeting a purpose of having liquid funds if needed. Outside this, it is advisable any savings should be invested towards long-term objectives or used to reduce debt. Do you have capacity to reduce your car loan from your savings? If so, this will free up some cash flow each month to counter some of the increase in living costs.

In relation to your mortgage, you are on a variable rate. Arrange to speak with your lender now to ensure you are on the most favourable rate they offer. If you have a strong loan to value on your home or if it is identified as a green property, you may qualify for a more favourable interest rate. Further to this, you may consider a fixed-rate mortgage if it suits your circumstances and to give you security against increasing rates.

Do a comprehensive budget, there are plenty of online calculators available through financial planning websites. Identify areas where you may be able to save on spending. You are taking the correct course of action in exploring options.

Q My employer has been very keen on getting staff back to the office and it really doesn’t appeal to me any more. It’s a high-pressure job and I found I could balance things much better when we worked remotely. The daily commute is particularly tough since lockdowns ended. The upshot is I really feel retiring early would be fantastic. I have a decent company pension but several years to go before retirement age. Is retiring early a pipe dream or is there any way of making that happen?

A Covid and the different circumstances of the last few years have changed the mindset of many. The question many have asked is what are they working for?

Work-life balance and wellness are central thought points of this. When decisions are made though, underpinning everything is financial viability. Dramatic changes will not work if the finances don’t add up.

You must ask what retirement would look like for you. What lifestyle do you want and can your current plan fund that?

Often more realistic than just stopping now is to put a plan in place. The time-scale is dependent on your calculation of the income required to live on from your retirement fund. Can you afford to maximise contributions into your pension now? By maximising contributions into your plan, there will obviously be a greater chance of getting to your targeted figure quicker.

It is important to factor in the risk profile of your investment to your decision making. As an example, if you are 15 years away from normal retirement age and this reduces to five years, it is advisable that the risk profile of your investment reduces accordingly.

An increasing trend is for people to never stop working. They just reduce their workload as they enter the traditional retirement years.

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