FOOL'S EYE VIEW
How To Cut The Cost Of Living

By Alison Hunt (TMFAlly)
April 26, 2005

How much money would you guess you would spend over the course of your lifetime? Recent research by Prudential has shown that figure to be, on average, £1,537,280! No wonder most of us feel that our earnings seem to slip straight through our fingers!

Average spending statistics were taken from the Office for National Statistics Household Spending Survey and a separate survey of more than 2,000 adults. Prudential then multiplied the average spending statistics by life expectancy to come to this 'Cost of Living' figure.

So where is all of this money going?

The figure has been broken down into eight main areas (see below) with the two biggest being 'Housing, Food & Clothing' and 'Taxes', swallowing nearly £840,000 straight away.

However, there are ways that we can slash these costs and hang onto some more of our hard earned cash! If you'd like to cut your cost of living, follow these simple tips:

Housing, Food and Clothing: £552,772

Unsurprisingly, these basic essentials account for the biggest share of our lifetime expenses – after all, we all need a roof over our heads and food to eat.

Homeowners, however, can save a fortune by re-mortgaging, especially if your introductory deal is coming to an end or you're currently paying your lender's Standard Variable Rate (ca. 6.75%) as this article shows.

Every 1% you can save by re-mortgaging can save you £1,000 each year (for a £100,000 mortgage); you'd be £83 better off each month straight away!

Overpaying your mortgage will save you thousands of pounds in interest and reduce the length of your mortgage too. Just £50 extra each month on a £100,000 mortgage will save you over £15,000 and mean you pay off your mortgage in a little over 21 years rather than 25!

And we can all be careful when shopping, either for food or clothing. Take advantage of those loyalty cards (but don't let them take advantage of you) and think carefully before buying those 'bargain boots in the sale'. Try to get better value for money by buying clothes using the 'price per wear' theory- if you'll wear a £100 skirt 100x, it costs £1 per wear - cheaper than a £20 skirt that's worn twice (£10 per wear).

Enter our competition to have your mortgage paid for two years in our Mortgage Centre.

Taxes: £286,311

This is where a good proportion of our income goes, but one thing we can make sure of is that we're paying the right amount of tax. Check your tax code, and use this Payslip Checker to ensure you're paying the right amount of tax and National Insurance. Stamp Duty is now only payable for properties over £120,000 and if you follow these tips you may be able to give a little less to the taxman.

Leisure and Luxuries: £236,312

Holidays, eating out, sports and hobbies use up another tidy sum, but money can even be saved on the fun things.

Don't just head to the High Street when booking that vacation; why not check out the internet holiday companies for bargain breaks and car hire? Using a 0% card to pay for your holiday can effectively give you an interest free loan for up to twelve months and find a Best Buy travel insurance policy here.

You can pay less for your travel money by following the advice in this article, and avoid rip-off 'loading fees' on your plastic by choosing one of the cheapest cards to use abroad.

Find out more about 0% Cards in our Credit Card Centre.

Travel Expenses: £137,126

How many of us run two cars when we could probably get away with one? You may be surprised to learn that car hire or using a Car Club coupled with public transport could save you a fortune each year – and spare you the hassle of owning and maintaining a car! Not only that but you may be encouraged to walk or cycle more – so you'll be fitter and kinder to the environment too.

Car owners can save a fortune by following our tremendous tips for motorists and you could cut the cost of your car insurance by following these tips – and find some of the best policies here.

Utility Bills: £101,760

Those gas and electricity bills keep on creeping up, don't they! But you can save up to £170 each year by changing suppliers – and companies such as Fool partner uSwitch make switching so easy! They can even help you to save money on your phone bills too! And switching to a metered water system can save smaller households a fortune too – why not slash your water bills?

Find out more in our Get out of Debt Centre

Legal Fees, Insurance and Financial Costs: £91,395

There's not much we can do generally to cut essential legal fee expenses – apart from marry a solicitor of course! The Citizens Advice Bureau (or even your credit card provider) can be worth trying if you need legal advice. But we can attack our insurance costs – and I don't mean by simply not having any.

Adequate cover is essential – especially if you have dependents, and it can be surprisingly cheap. Follow these tips to find cheaper protection and get a better deal in the Fool's Insurance Centre.

Find out more in our Insurance Centre.

Investments: £91,124

One good thing to come out of the report was that we are investing! But a very worrying point has also been raised – the period in which we spend the most is when we earn the least – namely retirement.

And unfortunately there is a gender gap with men saving around £124,000 into investments and pensions compared to a paltry £59,000 for women. What's going on, ladies?

We all need to be saving for our retirement – and the sooner we start, the better – after all, remember the miracle of compounding! As a rule of thumb you should aim to put away around half your age as percentage of your salary (assuming you haven't already got any savings put away). So if you're 30, you should be saving 15% of your salary for retirement.

A pension is the most obvious way to do this – and if your employer contributes to yours – don't miss out! That's essentially free money from your boss! Why not increase your contribution today – it'll sting at first but you'll soon forget you ever had it – and if you've just had a pay rise you may not even notice.

Other methods include investments and by using a cheap online broker you can reduce your investing costs greatly. But for those who aren't keen on buying and selling shares, why not set up a monthly payment into a cheap index tracker ISA? You can save from as little as £25 a month and be exposing your cash to the stock market in an easy, low maintenance way.

Find out more in our Learn to Invest, Pension and ISA Centres.

Education and Children: £40,650

Finally, education and children cost the average adult over £40,000 over their lifetime. Why not follow our Ten Ways to Boost your Family's Finances and save some cash?

Find out more in our Saving for Children Centre.

So there are ways that we can help to reduce our day-to-day expenses. Take a little time to follow these tips and slash yours – and hopefully look forward to a better retirement too!

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