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How confident are you in your household finances?

How confident are you in your household finances?

Category: Money

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Household finances have been feeling the pinch for years, but is the tide turning? New research from Markit paints a mixed picture: the squeeze on household finances is currently at a record low, but the outlook is decidedly pessimistic.

Record levels of positivity…

The latest Markit Household Finance Index gave a reading of 45.8 this month, a marginal increase from the 45.7 recorded in April and a new survey high. In other words, pressure on household finances is at its lowest level since the survey began, suggesting that people are feeling far more positive when it comes to their financial wellbeing.

This has been driven by ongoing improvements in the jobs market, the report noted, with average incomes rising for the fifth consecutive month. Positive inflation perceptions also helped to boost confidence, undoubtedly fuelled by the run of low inflation, which could mean that many people feel as though their money's going further. This week's announcement that inflation has turned negative will no doubt boost confidence even more, because in real terms, it means that the cost of living is now lower than it was a year ago!

Those working in finance or business services were the most upbeat regarding their financial wellbeing, followed by those working in the IT and telecoms sector. However, at the other end of the scale, household finances deteriorated sharply among those working in the media/culture/entertainment sectors, while those working in construction reported the first reduction in labour market activity since August 2013.

… but the outlook is anything but

The fact that some people are still downbeat perhaps explains why the outlook for financial wellbeing over the next 12 months has fallen for the first time since September 2014. The index for this measure gave a reading of 49.1 in May, down from 50.6 in April and below the 50.0 mark that signifies no change. In fact, negative sentiment was apparent in half of the job categories surveyed, with many people unconvinced that their financial situation will improve in the next year.

"The strain on UK household finances remained mild during May," said Philip Leake, Markit economist, "continuing the trend observed so far in 2015. [But], in contrast, households were downbeat regarding their financial outlook. Previously, optimism had been signalled for seven consecutive months – the longest sequence in the series history."

This pessimism could perhaps be the result of the general election outcome, said Colin Sutton of wealth planners Sanlam, as consumers are uncertain about future legislative changes and how they could impact their finances. As such, he urges caution: "People have started to loosen their belts when it comes to spending, but it is important that they do not get carried away with a little more cash in their back pocket. Britons need to think about their long-term spending and saving habits [to] ensure they don't fall short."

Don't lose sleep over your finances

If you're one of the many who aren't exactly brimming with confidence over your financial situation, you're not alone. Research from Müller Dairy found that money is by far the biggest worry in life, cited by 62% of respondents – even overtaking their own health (15%) or their family's health (13%) – and within that, paying the rent or mortgage is the number one concern. In fact, 53% lose sleep as a result of money worries, so if you're one of them, it's important to get back in control.

Sorting out any debt you may have should be at the top of the agenda. Consider consolidating with a personal loan, or if you've maxed out a credit card, you may want to switch to one that offers 0% on balance transfers – doing so will mean you can pay off your debt over a term of up to three years, without extra interest adding to the bill. If you're coming to the end of a fixed rate mortgage deal, it's worth looking at your remortgage options – there are plenty of great products around, and you could even get a five-year mortgage for the same price as a two-year deal!

Once your credit commitments are sorted, it's time to get serious about saving. If you haven't got an emergency fund, start building one! It's recommended to have at least three months' worth of income stashed away in a savings account, preferably an easy access version so you can instantly access the cash should an emergency hit. If you've got longer-term savings goals you could put a lump sum in a fixed rate bond, and don't forget to maximise your tax-free allowance by saving into a cash ISA. Anything you can do to build up your cash reserves will be welcome, so get in control and hopefully you'll feel more confident in your finances.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.