Our unemployment rate has fallen to a 48-year low of 3.5 per cent, and US inflation has pushed above 9 per cent – a four-decade high. Those are just two numbers that mean official interest rate rises in Australia are far from over.
However, there is no need for panic. You should try to put a clear, calm and conservative plan in place to get through the rest of the year with your finances relatively intact.
Here are five simple elements to get you started:
Forget misplaced loyalty
Never has it been more crucial to ditch and switch any providers that you have had for two years or more. We are talking everything from utilities and mobile phones, through to insurance and lenders.
Huge savings can be found if you simply switch providers.
A raft of comparison websites will help you find the best deals. Just be sure you disable what I call the “bias button” when you search that prioritises their partners, rather than your purse strings. Do this, and you should be able to cut almost every fixed-cost expense.
Where would it count most? The biggest pain-point – your mortgage.
The average mortgage is $611,158. The rise in the average variable interest rate loan to 4.65 per cent has added $424 a month to repayments since May. Many people have much larger mortgages than that.
However, a refinancing of the average mortgage to another with a more competitive interest rates of 3.1 per cent would save $541 a month in repayments.
There is a technique to do this if you carry over credit card debt.
The minimum monthly repayment is low, at usually 2 per cent, but often-punitive interest rates on the card mean your debt will continue to push higher if you just pay that amount. Instead, put your interest bill “on ice” by transferring your entire debt to a zero per cent balance transfer credit card.
Several providers charge no interest on transferred balances for 36 months, which means you can shelve your debt for three years.
You will see your overall debt grow, however, if you fall into one of two traps with these cards – you spend more on the new card, or you still have debt and keep the card at the end of the interest-free period. In both cases, the interest rate is brutal.
On the home-loan front, you need to plead financial hardship to get a reprieve from repayments.
Should times become too tight, and your household budget just won’t stretch to cover all the bills, your lender must extend hardship concessions. Indeed, so does any other provider.
If you are in danger of defaulting on a debt, approach the provider first and admit it.
Put yourself out of harm’s way
Every bit of surplus cash you can scrounge right now for an emergency fund buffer is worth its weight in gold.
If you have a mortgage, consider sitting this in an offset account that runs alongside your mortgage. This way, the money is there to tide you over when you need it, while savings a huge chunk of loan interest.
Audit your expenses
Most people can cut discretionary costs. Those niceties in life? They are optional extras for the cash-strapped.
Go through your bank statements and see where you might be frittering money away.
For just a short-term economic lockdown, where could you save?
Salvage your super
The median “balanced” superannuation fund declined 3.3 per cent in the 2021-22 financial year, according to SuperRatings. That is not cause for too much concern as super should be considered a long-term investment.
What is more important is to check that your fund has performed similarly, or better, last financial year.
The YourSuper comparison tool will help you compare MySuper products and choose a super fund that meets your needs.
Check also that your fund investment option – “growth”, “balanced” or “capital stable” – is appropriate for your age and risk appetite.
Generally, the further you are from retirement, the more you can afford to have an aggressive investment option, such as “growth,” that is more heavily weighted to equities because you have time on your side to ride out any sharemarket ups and downs.
Interest, and everything else, is probably set to spike up. Get yourself in a position to handle it.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.