As the cost of living crisis continues to bite, new research has revealed a surge in the number of people without any disposable income.
There has been a staggering 45 per cent rise in people reporting they have no disposable income compared to before the pandemic, according to HSBC.
Disposable income is the amount of money that a person is able to spend or save after tax and all necessities are covered.
Gender gap: Women are seeing the largest financial impact with 21 per cent reporting no disposable income after outgoings compared to 15 per cent of men
HSBC found that nearly one in five people claim to currently have no money left after outgoings, compared to 13 per cent before the pandemic.
Women are seeing the largest financial impact with 21 per cent reporting no disposable income after outgoings compared to 15 per cent of men.
The research also found that women have led the way in terms of cutting spending and kickstarting saving habits, often started during the pandemic lockdowns.
With the cost of living crisis now beginning to hit home, more are having to apply these budgeting principles in the long-term.
Among those women who changed their spending habits, roughly half said they are still spending less money on eating out compared to before the pandemic.
And 37 per cent said they were swapping products they previously bought for lower-cost alternatives, when shopping for goods such as groceries.
As for men, four in ten of those who had changed their money habits said they were spending less on eating out, with one quarter buying cheaper groceries and goods than before.
Women were also found to be more likely than men to reduce spending on holidays, lunches and office-related expenses.
How are people coping with rising living costs?
As of March, consumer price index inflation hit the highest level it has been in 30 years at 7 per cent.
This means that the value of the money in people’s bank accounts is essentially being eroded.
What £10,000 would have paid for in March 2021 will typically have been reduced to £9,346 if spent only a year later.
CPI inflation measures the average change in prices of more than 700 things that people regularly spend money on – and everyone will feel the impact of inflation differently. But it’s a good indicator of the challenge facing most households at the moment.
Anyone currently monitoring their energy bills, regularly re-fueling their car and shopping for groceries will likely be noticing more extreme price hikes than they are used to.
The HSBC research found that a quarter of Britons were looking to reduce their car usage as a result, 60 per cent were looking to reduce the amount of energy they use up at home, whilst roughly a half of Britons were looking to reduce spending on groceries.
Smart swaps: HSBC’s research suggested 37% of women and 25% of men were switching to cheaper versions of their favourite products when grocery shopping
Chantelle Perkins, senior financial wellbeing consultant at HSBC said: ‘Our research shows that most people are having to make changes to adapt to the current cost of living rise, but it’s clear that women are taking the lead to proactively implement changes to balance the household budget.
‘In the face of rising costs, it’s important for people to have full clarity on the current state of their finances and to know what resources are available to help them understand exactly how they are spending their money.
‘Budget calculators and features can provide valuable support in helping people manage their day-to-day finances and plan for the future.’
What more can people do?
Now is the perfect time to take stock of your financial situation – reviewing bank and credit card statements, as well as any savings, debts and investments.
If you’re using up your savings and accumulating debt, it may be that you are overspending. Given that everything is getting increasingly expensive, that is not a situation you want to be in.
You need to work out anything that you’re spending towards which you could potentially reduce or even cut out completely.
It may be that you decide that you can live without a gym subscription, a Netflix account, a daily cup of takeaway coffee or regular food takeaways.
Even if an expense is essential, such as home or car insurance, you may be able to save money by switching provider and getting a better deal.
For those able to squirrel away money, then ensuring you are either saving into an interest-paying account or investing the money will be your best guard against inflation.
For those saving, ensuring you are securing the best possible deal is vital in order to limit the damage.
Find a good deal: Ensuring any savings you do have are in an interest-paying account will go some way towards beating inflation
A staggering £265billion currently sits in accounts earning no interest, according to the latest Bank of England data.
A further £983billion remains in easy-access savings accounts and according to the latest CACI figures – which capture savings data from more than 30 leading providers – 68 per cent of the cash in these accounts is earning less than 0.1 per cent.
Someone with a lump sum to put away should still consider an easy-access savings account, which allows you to access and withdraw your money at any time – but shopping around is essential.
The best deal is offered by Chase Bank, paying 1.5 per cent. To be eligible, you’ll need to open a current account with the bank via its app, but there is no cost involved other than your time.
| Type of account (min investment) | 0% tax | 20% tax | 40% tax | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ONE YEAR | ||||||||||||
| Al Rayan Bank (£5,000+) (3) | 2.11 | 1.69 | 1.27 | |||||||||
| Atom Bank (£50+) | 2.05 | 1.64 | 1.23 | |||||||||
| Charter Savings Bank (£1,000+) | 2.05 | 1.64 | 1.23 | |||||||||
| Close Brothers Savings (£10,000+) | 2.05 | 1.64 | 1.23 | |||||||||
| Investec (£5,000) | 2.05 | 1.64 | 1.23 | |||||||||
| Kent Reliance (£1,000) | 2.05 | 1.64 | 1.23 | |||||||||
| Oxbury Bank (£1,000) | 2.05 | 1.64 | 1.23 | |||||||||
| Hodge Bank (£1,000) | 2.04 | 1.64 | 1.23 |
You might also consider a one-year fixed rate deal. The best rates currently pay above 2 per cent. Although you’ll need to be prepared to not have access to your cash for the fixed term period.
Anyone without savings already built up, who may be looking to kickstart a savings habit could consider snapping up a regular savings account.
A regular savings account is effectively a monthly saver which allows savers to set aside cash each month up to a certain amount.
First Direct is currently paying 3.5 per cent – fixed for one year. The account can be opened online or via the app with a minimum of £25 and customers can pay in up to £300 per month, totaling £3,600 a year.
However, they will need a First Direct current account to be eligible.
| Column | Rate | Max monthly deposit | Max balance | Max return after 1 year | Can you withdraw anytime? |
|---|---|---|---|---|---|
| First Direct (from 28 April) | 3.5% | £300 | £3,600 | £68.25 | No |
| NatWest | 3.25% | £150 | £1,000 | £25.58 | Yes |
| Royal Bank of Scotland | 3.25% | £150 | £1,000 | £25.58 | Yes |
| Nationwide BS | 2.5% | £200 | None | £32.26 | Up to 3 withdrawals in a year |
| Santander | 2.5% | £200 | £2,400 | £32.26 | Yes |
| Saffron BS | 2% | £50 | £6,000 | £6.50 | Only once a month |
| Credit: This is Money & Moneyfacts |
Those whose monthly payments are less than £300 have the option to carry the allowance forward from previous months. This is more generous than its rivals.
Someone who stashed away £300 each month into this account would earn £68 in interest after one year. In contrast, someone stashing the same amount into the best easy-access deal paying 1.5 per cent would earn £25.
However, unlike with some regular savings accounts, you can’t make partial withdrawals with First Direct.
If you close your account before the end of the 12 month period, it’ll only pay you interest at its standard variable rate, which is 0.1 per cent.
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