Cost of Living jargon buster

We’ve been hearing a lot about the Cost of Living recently, but what does it all really mean? Our jargon buster talks you through the phrases hitting the headlines and how they might affect your day-to-day.

Cost of Living

This is a way of talking about the amount of money you need to pay for all your essentials. So the Cost of Living looks at basic expenses like housing, food, taxes and heating.

When the Cost of Living goes up, because of things like higher heating bills or inflation, a bigger chunk of your pay check goes towards these basics. And if wages don’t rise at the same time, you’re likely to have less money each month.

We know prices are on the rise this year, so now’s a great time to start planning ahead and working out where you can make savings, no matter how small. There’s also lots of clever budgeting techniques that are worth taking a look at.

    Inflation

    While our money stays the same, it may not go as far as it used to. Inflation is the reason that a pint of milk might cost 50p one day and 55p the next.

    The inflation rate changes depending on what’s going on in the world. The Bank of England tries to keep the inflation rate steady, so it doesn’t go up and down too often or quickly.

    When the inflation rate goes up, you can see costs going up too. That could be anything from a bump in the price of your weekly shop to higher ticket prices at the cinema, bigger energy bills or even higher monthly mortgage payments.

      Interest rate

      Interest rates can tell you a couple of things – what you’ll make on any savings and the cost of borrowing.

      If you have savings, your interest rate tells you what money you’ll earn on the amount you’ve put away. It’s shown as a percentage of your savings pot.

      And if you decide take out a loan for example, the interest rate is what you’re charged for borrowing that money. The higher the interest rate percentage, the more interest you'll pay, so it's worth comparing rates before you make any decisions. For more info on the cost of borrowing check out our Borrowing Guides.

      Remember, interest rates also apply to things like car finance and mortgages so it’s really important that you keep up to speed with how any rise or fall may impact you and your money.

        Disposable income

        Disposable income is the money you have left over once you’ve paid for essentials, like rent or mortgage, food and bills.

        When you have a low disposable income, it means the money you’ve got coming in each month is mostly used on these essentials, also known as your ‘needs’.

        Often having a low disposable income means there isn’t much left to put towards other things like paying off debts, adding to your savings or buying any ‘wants’ you may have.

        There’s lots of simple ways you can increase your disposable income and creating a budgeting plan is a great place to start.

          Price cap

          Back in the 80s, the UK introduced price cap regulations to help make sure the prices set by businesses that offer essentials like electricity and gas didn’t rise out of control. Price caps can be introduced by the government to make costs more manageable.

          When a price cap is raised it means companies are free to charge more money for their services. So, for example, a higher energy price cap means that your gas and electricity bills are likely to go up.

          This year energy prices are on the rise so the UK Government is giving all domestic electricity customers a £200 discount on their energy bill in October 2022, to find out more visit Support for energy bills.

            Rebate

            A rebate is an amount of money that is paid back to you. You might get an income tax rebate if you’ve paid more tax than you needed to.

            This year (2022) the government has also set up a council tax rebate to help families manage their Cost of Living. It will be paid automatically to anyone who is eligible. You can find out more on their website, Council tax rebate.

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