How to protect your financial wellbeing in an energy crisis

At a glance

  • Runaway energy prices are affecting people across the wealth spectrum and could impact financial and general wellbeing.
  • There are steps you can take to regain a sense of control.
  • As energy costs rise, a few simple lifestyle changes could benefit your finances and the planet.
  • Financial-planning tips to beat inflation include reviewing your budget and ensuring your pension and investments are still on track to meet your long-term goals.

Average annual energy bills shot up by £693 to £1,971 in April1 as the energy price cap increased. With the cap set to rise again in October, the energy crunch is significantly eroding people’s income and savings – and threatening a financial wellbeing crisis.

Runaway energy prices unfortunately hit lower income brackets disproportionately. But financial worries aren’t necessarily linked to income. Low financial wellbeing can affect anyone, and the current crisis will impact people across the wealth spectrum.

How inflation affects wellbeing

Energy price rises are part of a wider inflation crunch, which is eroding people’s income and savings further. The Bank of England expects inflation to rise to 8% this spring and perhaps even higher later in the year,2 leaving cash savings worth significantly less in real terms.

Harriet Shepherd, Financial Wellbeing Manager at St. James’s Place, says: “Everybody needs to be aware of high inflation and do something about it. For example, some people who planned carefully for retirement may have to go back to work or suffer falling living standards. Others may have to postpone their planned retirement date.”

Fast-rising prices affect wellbeing by creating uncertainty and worries, such as how long inflation will last and how it could affect future income.

“Financial wellbeing has a massive impact on mental health, so this crisis will keep many people up at night and cause them to reassess their situation,” says Harriet. “A key way to improve financial wellbeing is to try and regain a sense of control and certainty over your finances. If you don’t feel confident about your money, make a change to bring control back, or speak to an expert – such as a financial adviser.”

A good place to start is to review your overall energy use. A few simple changes could bring significant savings – and align your lifestyle with your ethical views, for example, around reducing reliance on fossil fuels and supply from undemocratic nations such as Russia.

You may already support the fight against climate change through your responsible investing stance. Saving energy in your home and through your travel habits aligns your lifestyle with these views, too.

How much can you save on home energy?

British homes are among the least energy efficient in Western Europe.3 A typical roof or loft-insulation installation costs £680 but saves £580 and 1,300kg of CO2 a year in a detached house, according to Energy Savings Trust.4 Floor and cavity-wall insulation also provide significant savings, as does draught-proofing.

Solar panels are more expensive but should be worth it in the long term. A typical installation costs £6,500 and saves up to £505 and 850kg of CO2 a year in London.5

Energy Saving Trust provides many more tips for smaller energy-saving actions, including how to improve heating-system efficiency, and generate and store other types of renewable power.

You might not have the funds to make all these changes. But many energy-saving actions need no investment and are still a positive step for your finances and the environment. Besides, investments such as insulation and solar power should also add value to your house – and so have a net positive effect on your overall wealth immediately and in the long term.

How much can you save on travel?

If you make your next car electric, you could save significant amounts of money and CO2. Filling a car with diesel or petrol typically costs three to four times as much as charging an electric car.6 Also, there are grants available for buying electric, plus vehicle tax, parking and congestion-charge savings.

Energy Saving Trust has many more cash and carbon-saving tips around active travel, efficient driving and shared-travel options.

Wider financial-planning tips

Next, look at all your other income, savings and spending in detail. This will help you see what you can change or reprioritise to balance and protect your finances against inflation. For example, maybe you could reduce spending on certain items or ask your employer for an inflation-linked pay rise.

If you have lots of cash savings, could an alternative use be found for them? In a low-interest, high-inflation environment, cash will lose value in real terms.

It’s also sensible to look at whether your pension and investments can still support your long-term goals. Will they grow enough to maintain your living standards if high inflation continues?

Alongside improving energy efficiency, these changes can help you cope better with inflation, give you more control and certainty, and improve your longer-term financial wellbeing.

Where to get help

There are many independent resources available to help you manage your finances, such as MoneyHelper. We also have lots of tips and tools to help you adjust your budget, and spend and invest responsibly, so speak to us today.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may therefore fall as well as rise. You may get back less than you invested.

An investment in equities does not provide the security of capital associated with a deposit account with a bank or building society.

Sources:

1 Price Cap to Increase by £693 from April, Ofgem press release, February 2022

2 Will Inflation in the UK Keep Rising?, Bank of England, March 2022

3 UK Homes Losing Heat up to Three Times Faster than European Neighbours, Tado, February 2020

4 Reducing Home Heat Loss: Roof and Loft Insulation, Energy Savings Trust, based on April 2022 prices

5 Generating Renewable Electricity: Solar Panels, Energy Saving Trust, based on March 2022 prices

6 Low-carbon Travel: Electric Vehicles, Energy Saving Trust, accessed April 2022

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