2022 is almost over (thanks heavens for that) and it’s gone and taken the prize for one of the grimmest years. Ever. Stock markets are down thanks to double-digit inflation and super-high interest rates that are trying to calm things down but are busy breaking nearly everything else in the process. Since our whole world was pretty much built on the premise that ultra-low rates would stick around forever. Though, higher interest rates might just be welcome as they’re washing out the dirt (cough, cough FTX)!
But investors got freaked out by all this uncertainty (and quite rightfully so) so markets sold-off. Kind of heavily, actually. And quickly. Though they had a cheeky October rebound. And as things stand, the S&P 500 has lost 16% this year and the Nasdaq 28% but interestingly (though not surprisingly), the FTSE 100 held up pretty nicely! Losing a mere 1.59% this year. That’s your sliver of sunshine for the year so far. And that’s where it kinda ends! (Psst: read here why bear markets have proved to be the bets buying points).
For us young lot, inflation wasn’t even in our vocab. Until now. And high interest rates? You’ve got to be kidding. We’d have to turn to our textbooks for that. I was a kid in ‘08 and was sheltered from the carnage that was going on around me. And now, we’ve got a double-whammy of sorts. There’s really high, double-digit inflation that’s making everyone feel really uncomfortable (though – most reckon we’ve peaked) but also really high interest rates, they’re now at levels not seen since ‘08. If this wasn’t enough, here in the UK we’ve got the pleasure of higher taxes to come. We’re all gonna feel the pinch.
Cost-of-living leads to tough choices
With inflation running along and our wages huffing and puffing trying to keep along (which they’re obviously not), we’re having to cut back on extras and are simply having to make do with less. Though oddly enough, people keep telling me how they’re going travelling, eating out ect – which makes for one weird recession! But, travelling could still be a pent-up-demand-thing. Many couldn’t travel for years. My colleague told me how his trip to Thailand had been cancelled for 2 years in a row thanks to covid (and local protests!). He’s now taking that trip. And I bet others are doing the same. But restaurants, bakeries and other eateries seem to be full! Again, this is not a textbook recession.
We’re being stretched. A little too much!
Thanks to inflation, the biggest expense – rents – are eating further into our precious paychecks. In London, the average renter spends a whopper 46.3% of their (pre-tax) salary for an average 1-bed house/flat. Something, somewhere has gone horribly wrong but that’s a moan for another day. Now you know why I’m still living at home! London and high rent seem to be wedded together. Till death do us part. Outside of London, this figure magically drops to 26.4%. Now you know why I’m living at home! Lucky for me, my fam jam lives in London and I work in London so I’ll be staying put for a little while longer. The thought of spending so much of my hard-earned wages on rent makes me feel a little queasy.
Though the situ in NYC is not much better I hear. My friend, after having lived abroad for 2 years, is now looking to go back home. Trouble is, she can’t find a place – not within her budget anyway! So she’s staying abroad till something semi-reasonable pops up. The trouble is that with interest rates hitting levels not seen since ‘08, landlords’ margins are being squeezed. BTL mortgages are going up so they’ve no choice but to keep putting rent up. Then there’s the supply and demand thing. There simply aren’t enough properties to go around. So rents are going through the roof and renters are bearing the ugly brunt of it all.
Expect loads more layoffs
It’s not just individuals that are bearing the brunt. Companies, especially small biz, are also and many are struggling to cope under the pressure of higher wages and other input costs (incl raw materials). Their margins are being squeezed. Layoffs are already happening, with the tech sector leading the group – read here all about that & the lesson in it for us.
Just yesterday, I saw a post from a small business owner who has had to shut down her restaurant after just 4 years because she simply couldn’t cope with rising energy bills, wages and all the rest of it. The numbers just didn’t make sense anymore. This isn’t the first story like this and it sadly won’t be the worst. Inflation can be brutal.
Higher taxes leave us with less to spend – but that’s the whole point I suppose
For us young Brits, 2022 became a whole lot grimmer. Chancellor #3 (after a botched budget from chancellor #2 – don’t worry if you can’t follow, nor can I!) delivered some nasty tax hikes, spending cuts and even sneakier – stealth taxes. What’s even worse, is that these measures, designed to reduce our debt pile (though it’s actually on the lower end compared to its G7 peers so I dunno what the rush is) are hurting the young disproportionately.
And all this hurts aggregate spending. And since consumer spending makes up around 60% of our country’s GDP, low spending ain’t good for growth. But they’ve gotta get this inflation thing down, way down. So I’m afraid lower spending is the sour pill that we’ve just gotta swallow. Not that anyone’s asking us though!
Don’t forget to fund your future
With all these tax hikes (inflation being one of them!!) and high interest rates, meaning our monthly bills are sky-high, you must not neglect your future. It’s so easy to dip into your investments (or to ditch them altogether) to fund your spending but that means your future self will end up poorer.
Keep contributing to your workplace pension and if you’re a freelancer or a small biz owner, make sure you don’t forget about your pension. It looks like the gov will raise the pension age to 70 – which will most likely rise to 75 by the time my gen turns grey which means we’re living longer and we’ll need more money during retirement. Life is expensive – especially when you aren’t working!
So please don’t neglect your pension. It’s one of those things that people tend to neglect as soon as they need some extra cash but if you don’t fund your future self, then who will? And the older you get, the less time your money will have to compound which means, if you wanna get to that same number ££ in retirement, you’re going to need to contribute a whole lot more each month which can get tricky.
I know it’s super easy for me to say as I’m living at home and can afford to contribute a little more to my workplace pension but you’ll automatically enrolled for 8% so don’t lower/forgo this! Otherwise, you’ll be leaving free money on the table. I was speaking to my fellow grad who, like me, has decided to increase his pension contribution while he still can (aka has no dependents and is enjoying subsidised rents). But we know this won’t go on forever. But we’re taking advantage while we still can.
Please don’t forget to fund your future. No matter your age or stage of life.
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.
Leave a Reply