The Office for National Statistics (ONS) recently confirmed that the UK has entered a recession. In a blow to Rishi Sunak, UK Gross Domestic Product (GDP) fell by 0.3 in the last three months of 2023, following a 0.1% drop in quarter three.

Despite delivering on his promise to halve inflation in 2023, the Consumer Prices Index (CPI) has stalled. In better news for the prime minister, wages are rising and the energy price cap is expected to fall in April.

Workers are also feeling the benefit of the government’s cut to National Insurance (NI), increasing take-home pay for millions.

But the cost of living crisis isn’t over.

Keep reading for five ways to navigate the evolving crisis, prepare for tax year end, and enjoy a prosperous 2024.

1. Build an emergency fund

If you’ve been following our #MoneySavvy podcasts on our social media platforms, you’ll have heard Sanjay speak about the need for an emergency fund.

When money is tight and markets are volatile, this is more important than ever.

Try to keep between three to six months of household spending aside in an easy access cash account, so it is readily available if you need it.

This might be to pay a one-off expense or to cover a period when you’re not earning. Either way, a rainy day fund should help you to stay afloat without the need to cut back on essentials.

Be sure to keep an eye on inflation and your bank’s interest rate. When inflation is higher than the rate of interest, your money is effectively losing value in real terms so keep aside only what you need to tide you over.

2. Use round-up apps to save as you shop

When inflation hit a 41-year high of 11.1% back in October 2022, millions of UK households felt the squeeze on their budget.

And while the CPI has been falling since, more recently it has stalled. The Bank of England (BoE) now expects inflation to hit its own 2% target temporarily in mid-2024 before rising again. It won’t return to 2% until 2027.

Above-target price rises are set to be with us for the next three years. That means keeping on top of household budgeting is key.

Track your income and outgoings to look for areas where savings can be made. You might also try round-up apps that allow you to save when you make purchases, transferring the odd amounts straight into your savings.

3. Make the most of your allowances

Tax year end is fast approaching and that means now is the time to get on top of your allowances. This is especially true as some are due to fall in 2024/25.

Your pensions and ISAs are both incredibly tax-efficient. Be sure to make full use of your £60,000 Annual Allowance, if you can afford to.

The Annual Allowance is the maximum amount you can contribute to your pension in a single tax year without facing an additional tax charge.

For the 2023/24 tax year, it stands at £60,000 (or 100% of your earnings, if) is lower. Consider making additional contributions to benefit from tax relief. This is applied automatically at 20% but you might be able to claim extra relief as a higher- or additional-rate taxpayer. This is done via self-assessment.

Be aware that your Annual Allowance may be lower if your income exceeds certain thresholds or you have already flexibly accessed your pension.

Also, think about how you dispose of assets as the new tax year approaches. According to MoneyAge, Capital Gains Tax (CGT) receipts exceeded £16 billion in 2021/22, as this could rise when 2023/24’s figures are calculated.

The Annual Exempt Amount determines how much profit you can make before CGT becomes payable. It stood at £12,300 in 2022/23 but more than halved in 2023/24 to £6,000. It is due to halve again, to just £3,000, in April 2024.

4. Don’t follow the crowd into crypto

As human beings, we’re all susceptible to subconscious biases. Some of these will have been with us since childhood, while others might have grown over time.

One such bias is known as trend-chasing or herd mentality. In terms of your investments, it could see you following the crowd without giving sufficient thought to whether the move is right for you.

Your financial plan is individual to you and based on your long-term goals and aspirations, as well as your attitude to risk. That means what’s right for one person might not be right for you.

While there is a current trend toward cryptocurrency, the advice from Future Planning is clear, as you can hear from Sanjay in his #MoneySavvy podcast.

5. Preparation is key to getting on the housing ladder

If you’re looking to make 2024 the year you get onto the housing ladder, the continuing – and evolving – cost of living crisis could make that tricky.

But preparation is key. Rein in your spending and have all of your paperwork up together. Ensure you are on the electoral roll and check in with your credit score before you approach lenders.

Buying a house is a huge financial commitment so speak to us before you make any decisions.

Get in touch

If you would like to discuss any element of your financial plans in 2024 and beyond, please email enquiries@futureplanningwm.co.uk or call 01793 575553.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. You could lose your investment. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.