On average people in the UK have just £205 left after essentials and bills and 38% have less than £100 left to spend or save each month, according to the Scottish Friendly Disposable Income Index.
The findings also show that over 9 million people regularly take out around £100 from their savings each month to help pay for everyday expenses.
Although the UK average of disposable of income has risen by 5% since the last survey 6 months ago, personal budgets have yet to recover.
Londoners amongst the worst off
One consequence of housing costs hitting savings is that Londoners are among the worst off when it comes to disposable income.
Londoners have an average disposable income of just 6.9% of their take-home pay – well below the national average of 8%.
Neil Lovatt, product director at Scottish Friendly, says: “…people in London are often envied for their larger than average salaries, but with rising property and rental prices in the capital and a high cost of living, those in London are, relatively speaking, often among the worse off in the country.”
Savings hit –anything left for rainy days?
With savings being used to cover everyday costs, having nothing left to cover “rainy day” emergency expenses such as car repairs, boiler replacements or unexpected redundancy can be a common concern for many.
There are a range of different options to cover emergency costs for those with no savings, but choosing the right option and putting a plan in place is important to ensure a healthy budget and avoid unsustainable debt.
In the short term, purchase credit cards can be used to buy the essentials, freeing up your cash to pay for a rainy day emergency. If your credit cards are already maxed-out, a balance transfer card can be used to hold debt from existing credit cards, clearing you up to spend.
Many cards come with 0% interest periods, essentially offering “free” money in the short term, but the minimum monthly repayments must be met to keep the 0% interest and there will be high rates to pay after the interest free period expires. However, repayments are flexible and more can be paid back to shrink a debt faster.
Low APR credit cards are the best ‘all round’ credit card type for sustained borrowing.
Alternatively a 0% purchase card will allow you to pay no interest on your purchases whilst you build up your savings, giving you a buffer period.
Quick fixes vs longer term solutions
An overdraft can provide emergency cash. Many current accounts offer authorised overdrafts which typically have a limit of £250. Whilst interest is usually charged on this it will typically be lower than a credit card and some accounts even offer interest free overdrafts.
Credit cards and overdrafts are handy quick fixes, but personal loans can be cheaper for borrowing larger sums of money to be paid back over a longer period.
The interest rate on a loan should be much lower than a credit card, making this the cheapest option in the long term, but there are fixed monthly repayments that will need to be met until the loan is fully paid off. A personal loan is not to be confused with a payday loan, which is by far the most expensive option and best left as a last resort.