What inflation means

Inflation measures the change in the value of money.

Let’s look at what this rise in inflation means to our day-to-day lives. Inflation measures the change in the value of money. Essentially, if your weekly shop was £100 a year ago, and current inflation rate is 8.8%, it means that today, your weekly shop is £108.80. This is something we have all experienced this year.

How this effects your Savings

If you have £10,000 in savings with a 1% interest rate, it means you could use it to buy a car one year, but the next year it won’t be enough because your funds are being ‘eroded’ (in other words, they’re losing their value).

When you’re saving

In times of high inflation it is worth considering putting income that you’re not keeping for easy-to-access cash or a rainy day fund into your pensions and investments. Cash will buy you less over time, whereas pensions and
investments will hopefully have a growth rate that combats the effect of inflation by giving better returns. It’s important to remember investments are usually recommended for medium-to-long-term savings. The value of your investments can go down as well as up and you may get back less than invested. This is another reason why it’s important to get Financial Advice. If you’ve invested some money by yourself, it’s definitely worth checking that the rate of return is the same or higher than inflation. Because just like
keeping cash, if your savings aren’t keeping up with inflation, the value will get eroded.

If you’re taking an income from pension or investments

If you’re withdrawing funds from an investment or defined contribution pension scheme (which is what most pensions are these days), and inflation is high or your fund has had a bad year in performance, that’s a crucial time to review your finances. Mainly, you have to think about whether the amount you’re drawing is sustainable in the long run.

Time to check your finances?

Inflation is high and could increase in the future, so it’s the right time to check that your finances are in a good position to deal with any changes. You can go through the paperwork yourself, or chat to one of our team for a clear picture and advice on next steps. The value of units can go down as well as up, you may get back less than you invested. Tax rates and reliefs are subject to change. This does not constitute personalised advice.