What Goldilocks has to do with inflation…

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Inflation is up again today 😑 So let me explain what the Goldilocks fairy tale has to do with the cost of living crisis… 🐻

Inflation is the rate at which prices rise – to put it simply, if a box of stuff costs £100 today, and inflation is 5 per cent over the next year, that same box of stuff would cost £105 next year – because £5 is 5% of 100.

Now in practice, some things will get more expensive than others, so some people might be affected more by inflation than other people depending on the stuff they buy.

Also, inflation is not necessarily a bad thing. A little bit of inflation shows the economy is growing, our quality of life is getting better and so on, but it can get out of control.

You want it to be like the little bear’s porridge in the story of Goldilocks – not too hot, not too cold, just right. But if prices are rising faster than people’s wages, you have a situation where people might not be able to afford certain things and they’ll have to cut back their spending. Unfortunately, that’s exactly what’s happening right now. Right now, the porridge isn’t just too hot, it’s getting volcanic! 🔥

Inflation is going up partly because energy costs are going up, and therefore it becomes expensive to run a business, so those higher costs get passed onto consumers.

But there is an additional problem caused by the conflict in Ukraine, whereby certain raw goods that we need for food like wheat become restricted and when that happens, you’ve got the old law of supply versus demand. When the supply of something is massively outweighed by demand for it, it becomes more precious and therefore more expensive.

If you haven’t already, compare your costs month-on-month, year-on-year, to see how much they’re rising. Then, you can identify the most effective cutbacks you can make.

Keep your receipts and start spending with cash if you find money is running out sooner than you thought.

Finally, the new tax year has arrived so use your Isa allowance to conserve as much of your emergency/spare cash as possible.

Inflation is high enough without tax needlessly gobbling up your money too!