Understanding the Cost of Living

Introduction

Over the past few years, headlines have been filled with the phrase "cost of living crisis." But what does that actually mean? More importantly, how does it affect our day-to-day lives—and what can we do about it?

Understanding the cost of living is crucial for managing your money, making smarter financial decisions, and planning ahead for your future. Whether you're budgeting your weekly shop, deciding on a loan, or trying to save for a rainy day, knowing what drives prices up (and how to respond) can make all the difference.

In this post, we’ll unpack what the cost of living is, why it’s risen so dramatically in recent years, and offer practical tips to help you navigate it—plus where Cambrian Credit Union fits in.

What Is the Cost of Living?

The cost of living refers to the amount of money needed to cover basic expenses such as housing, food, taxes, and healthcare in a particular place and time. It directly affects your financial wellbeing.

Commonly measured using inflation data, the cost of living is influenced by:

• Inflation – the rate at which prices rise over time
• Wages – how much people earn compared to what they need to spend
• Interest rates – how expensive it is to borrow money
• Local prices – costs for essentials like fuel, transport, and rent

When your costs go up but your income doesn’t, you feel the squeeze—and that’s what’s happening across the UK.

Why Is the Cost of Living Rising?

Several factors have driven the UK’s recent surge in living costs:

1. Global energy crisis: After the pandemic and due to international conflicts like the war in Ukraine, energy prices spiked, driving up electricity and gas bills.
2. Food inflation: Weather issues, Brexit-related supply chain problems, and global shortages have raised food prices.
3. Interest rate hikes: To fight inflation, the Bank of England raised interest rates—making mortgages, loans, and credit more expensive.
4. Stagnant wages: Despite rising costs, many salaries haven’t kept up, especially for public sector workers.

In short: everything is more expensive, but most people aren’t earning significantly more to match it.

How Cost of Living Affects Households

For many families, this has meant:

• Cutting back on non-essentials
• Choosing between heating and eating
• Dipping into savings—or taking on debt

Recent surveys show:

• Over 50% of UK households have reduced spending in 2024
• Food bank use has hit record highs
• One in three adults say they feel anxious about money every day

This isn't just a temporary issue. Without planning and support, the effects of a high cost of living can linger for years.

Budgeting Tips to Stay in Control

Here’s how to stay ahead of rising costs:

1. Track Your Spending Keep a simple log of all expenses for one month. Free tools like MoneyHelper’s Budget Planner can help you see where your money’s going.
2. Prioritise the Essentials Focus on food, shelter, utilities, and transport first. Reduce spending in non-essential areas like takeaways, streaming, or impulse shopping.
3. Create a Sinking Fund Plan for big or irregular expenses (e.g., car MOTs, Christmas). Put a little away each month to avoid panic spending later.
4. Take Advantage of Discounts Sign up for supermarket loyalty cards, use price comparison apps like Idealo or Too Good To Go, and check if you’re eligible for council support schemes.
5. Cook More, Waste Less Meal prepping, batch cooking, and reducing food waste can save the average family over £500 a year.

The Link Between Cost of Living and Saving

It may seem counterintuitive to save when prices are rising—but this is exactly when saving becomes more important.

A small, regular saving habit—even £5 a week—can protect you from high-cost credit when unexpected bills strike. Building a financial buffer is one of the best ways to stay resilient in tough times.

How Cambrian Can Help

As a member-owned organisation, Cambrian Credit Union exists to support people—not profit. In the face of rising costs, we’re proud to offer:

• Fair and transparent loans, including our Starter Loan (ideal for smaller sums with no hidden fees)
• Flexible saving accounts with no minimum balance
• Free budgeting tools available through our website
• Community-focused service, always putting people before profits

Conclusion

Understanding the cost of living isn’t just for economists—it affects every household, every day. By learning the causes, making small but powerful changes to your budget, and accessing the support available, you can take back some control.

At Cambrian Credit Union, we’re not just here for savings—we’re here for you. Whether you’re saving for tomorrow or just trying to get through today, we’ll help you make it through.

Let’s tackle the cost of living crisis together—one step at a time.