Page 103 - LCNL Diwali Magazine 2022
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Happy Diwa
                                         Happy Diwali                RAGHUVANSHI 2022 - 2023                         99
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               Cost of Living, challenging times ahead, be prepared






                                 The festive time of “Deepavali”, The festival of lights marks new beginnings and signifies the
                                 triumph  of good over  evil, light  over  darkness, and knowledge  over  ignorance. We  celebrate
                                 with immense faith and enthusiasm and invite wealth, prosperity and well-being into our lives by
                                 observing Dhanteras and Chopda Pujan. It is also a time we give gifts to family and friends and

                                 help the needy.  Post celebrations, the next 12 to 18 months will be very difficult and different for


                                 many. Unless you are super wealthy and money is no issue, we will likely face personal finance

                                 challenges.
                                 High inflation and increased cost of living, below inflation investment returns, increasing interest


                                 rates, the energy crisis and war in Ukraine do not bode well for all of us. My suggestion is that you
          take a moment to schedule some time to review your personal finances post-Deepavali celebrations. By doing so, you will give

          yourself the best gift for the next 12 months. Key areas to focus on

                                           Impact of High Inflation on Cash
                                           No one is immune from inflation. We all need to plan to protect our savings and

                                           future income from the rising costs of living. Making sure your money lasts as long as
                                           possible should be an integral part of your planning.

                                           Given the current level of inflation and the poor interest rates on your savings, you

                                           should consider reviewing how these are invested to help protect the value of your
                                           savings. As we have experienced over the last decade, bank interest cannot be expected

          to keep pace with inflation, in fact, instead earning a negative real rate of return. To appreciate the impact it can have on cash,
          consider a cash ISA holding of £100,000 at the current level of inflation, say 8% (it’s higher) this will be worth approximately

          £92,000.00 in a years’ time.   You are losing money holding cash in the current environment.

          You, therefore, need to consider investing in assets that can be expected to produce enough growth, to keep up with inflation
          over the long term. Granted cash is the ultimate safe asset, with no investment risk, however with high inflation significantly




          impacting its buying power you need to adapt and move with times. Holding a tax-efficient investment portfolio could help

          protect your capital from inflation but will inherently include some level of volatility. However, sometimes volatility in the market
          creates its own opportunities and when they arrive, which could be in the near future, you should consider grabbing them.

                                           Cost of Living - Review Personal Cashflows


                                           Inflation affects us all, how it impacts us individually will depend on our own spending

                                           habits.  Cashflows will help you understand the impact of higher outgoings and how
                                           this may affect your lifestyle.


                                           If you have never done a personal cash flow now is the time to do one. For the next
                                           12 months input the increase in energy costs, school fees if any, mortgage cost (if you
                                           are coming off your fixed rates), transport, cost of groceries etc, and credit card bills.


          Don’t ignore one-off major expenses and budget them separately for any home renovations, holidays, and gifts you would like

          to make and see how your finances stack up. For help just go back to the last couple of months’ expenditures and ignore one-off

          items.
          This will help you budget forward and allow you to decide which items of spending you feel are not necessary. You should
          also review any renewal quotes you receive to see if cheaper options are available for example, car insurance. This is however
          particularly difficult with the energy market at present, with a very competitive rate available. The target should be to bring your



          spending down to a level below your net income if it is not already. Any surplus can then be used to pay off any high-interest
          debt, build up emergency savings (3-6 months expenditure) and then invested for your future.
          If it is possible never stop contributing to your pension savings as when a crisis comes, savings and insurances are generally

          the first to go. By doing this you may lose out on employer contributions and tax relief on your contributions, which will be
          detrimental to your future.
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