Nearly half of UK adults (47%) say the rising cost of living is concerning, according to Aldermore, making it the top financial worry for 2022.

Despite record levels of inflation and energy price hikes, over a third (37%) they admit have not made any plans to mitigate the rise in living costs.

Two in five (41%) are worried about their financial future with a quarter (27%) saying their current financial situation is not sustainable.

Over a fifth (22%) weren’t able to save last year, with one in three (33%) saying this was due to having no money left after outgoings and bills. Given the current environment, this is likely to get worse, indicating many could struggle with the rising cost of living.

Nearly a quarter of UK adults (23%) admit they do not have any funds saved in case of an emergency.

How people are coping

People are taking action to combat rising costs, Aldermore found, with many focusing on cutting spending on non-essential or luxury items as the most popular method.

Of those who have taken steps to prepare themselves for the increased costs of living, the most common actions are to shop less frequently for non-essentials, such as clothes and toys (33%), reduce spending on socialising (28%), and shopping in different, lower-cost supermarkets (22%).

Ewan Edwards, head of savings at Aldermore, said: “With inflation at a 30 year high, and energy bills predicted to increase by over 50%, more households across the country will be feeling the effects on their disposable income. As the cost of living rises, we’d encourage people to be proactive in planning for it, so they do not feel underprepared. Taking positive action to review personal finances, budget, and save can make all the difference in maintaining long term financial stability.”

Top tips for budgeting

Aldermore has published it’s top tips for better budgeting to help manage your money during the cost of living crisis:

Set a savings goal
Whether it’s saving for a holiday, a house deposit, or a special occasion, being clear on what you’re saving for will help motivate you to save rather than spend. It’s important to set a timeframe for when you’re aiming to reach your savings goal. Doing so will help you estimate how much you’ll need to set aside each week or month.

Check where your savings are currently being held
Smaller banks generally offer better savings rates than high street giants, so it is worth shopping around. There is value in getting the best rate possible as the compound interest can really add up over time. Utilising different savings products for your various savings goals can be helpful also. Fixed rate accounts typically offer higher interest rates and can be useful when saving for a bigger expense on the horizon and assist in avoiding temptation to withdraw funds early.

Review your monthly expenses regularly
Take a look at your recent bank statements and familiarise yourself with your spending patterns. Calculate all your outgoing expenses and work out how much of your pay you spend on these items. Next, turn your attention to those unnecessary spending habits which you can drop. Small changes, such as occasionally making your own coffee or lunch a few days a week, will add up over time.

Allocate a budget and stick to it
After identifying your necessary outgoings, allocate a monthly budget to spend on socialising, shopping and other activities. Hold yourself accountable and don’t shy away from reviewing your bank balance regularly. Ahead of every week, keep track of how much you’ve spent so far and adjust your budget for the forthcoming weeks based on this.

Review your savings habits regularly
If you’re having difficulty meeting your savings target amount, reduce your monthly contributions to make it more manageable. If you receive a pay rise, a financial gift or find your monthly outgoings are reduced, consider increasing your contributions to achieve your savings goals sooner. Getting into the routine of regularly saving, even if small amounts, is a positive habit to do and it can be surprising how it adds up over time.

Build a separate emergency fund
While many tend to save with a particular goal in mind, it is important to also consider the unexpected. By growing a ‘rainy day’ or emergency fund, alongside regular savings, you can gain peace of mind that if unexpected costs or any financial difficulties arise then there are funds to help ease the stress of this and, in the cases of for example damage to a car or urgent repairs needed on a home, you’re able to get back to normality more quickly.