Cost of living jargon buster

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 rising, 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.

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 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 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.

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.

The government are giving out extra payments to help if you’re entitled to certain benefits or tax credits.

There’s no need to apply as they will be paid automatically to anyone who is eligible. You can find out more at GOV.UK - Cost of living payments 2023 to 2024.

While we really hope you find this page helpful, please know it’s for information only and not financial advice. Any facts or figures we’ve used were checked at the time of publication and came from a range of sources.