We’ve seen interest rates bounce back up over the past three months, and most economists are predicting more increases to come. If you’re starting to worry about your finances, rest assured there are several steps you can take now to get on the front foot.
The days of ultra-low interest rates are officially over (it was nice while it lasted!).
And while all the talk of doom and gloom you see in the media about rapidly rising interest rates can be a bit spooky, now’s not the time to panic.
Check out this Reserve Bank of Australia (RBA) graph here, for example. It shows interest rates are currently lower (as of July 2022) than they ever were prior to May 2019.
So the current cash rate is nothing extraordinary - although it might come as a shock to newer borrowers, as we previously hadn’t had a cash rate hike since November 2010.
Still, there’s no denying that some households are starting to feel the squeeze, and if you put yourself in that category, now’s the time to consider implementing one or more of the below measures.
1. Start building up a buffer
There are no two ways about it - interest rates will go up over the next few months.
Currently, the RBA cash rate is at 1.35%.
Economists from the big four banks are predicting it could increase to anywhere between 2.60% (Commbank) and 3.35% (ANZ) by November.
That means it’s important to start planning ahead now, if you can, by building up a buffer.
This usually includes putting extra money into an offset account, redraw facility, or savings account - usually a facility that’s attached to your mortgage or easy to access.
2. Reduce expenses
Stan, Netflix, Spotify, Amazon, Audible, Apple TV, Disney, Paramount+, Kayo, Binge … the list goes on.
How much do you spend on subscriptions each month?
While they helped us get through lockdowns, these subscription services (that you might have forgotten to cancel) could be costing you a lot more than you realise.
In fact, the average Australian household spends $55/month on entertainment subscriptions.
Next on the hit list: takeaway coffees.
Six takeaway coffees a week costs about $27, which is about $120 a month, or $240 per couple.
Instead, you can brew your own (barista-quality) coffee at home for $30-$70 a month.
Then there’s Uber Eats, Menulog, DoorDash, Deliveroo - sure, takeaway dinner is great every now and then, but if you’re making a habit of it then it’ll really start to add up.
And the best part about home-cooked meals is the leftovers for lunch the next day - that’s two meals for the price of one.
3. Shop around
A recent Choice study found Aldi to be the cheapest grocery store. So that’s a start when it comes to your weekly food bill (which is also going up each month thanks to inflation).
Failing that, this ING survey found the average Australian family saves $114 a month simply by doing their grocery shopping online (must be because you spend less time in the choccy aisle, and more time buying just the essentials!)
But it’s not just your groceries that you can shop around for a lower price on.
Car insurance, home insurance, utilities, your phone bill, and your internet bill are other monthly expenses you can usually find a better deal on.
While we’re on the subject of shopping around, it goes without saying that if you haven’t refinanced for a while, there’s a decent chance you could get a better rate on your home loan.
But why refinance now if interest rates will just keep rising anyway?
Well, let's say you refinance your variable rate home loan this month from 3.50% down to 3%.
If the RBA raises the cash rate by 0.50% next month, and your bank follows suit, your interest rate will then be 3.50%.
But if you choose not to refinance (and your bank follows the RBA's lead) it'll be 4%.
This 0.5% gap would remain for all subsequent upcoming interest rate rises - so long as the banks increase their interest rates in lockstep with the RBA.
Another option you can consider is consolidating multiple loans - such as a car or personal loan - into your mortgage to reduce your monthly expenses.
Now, it’s important to note that if you do this you’ll pay more in interest on the car and/or personal loan over the lifetime of those loans, but if you need cash flow now, this could be a possible solution.
Similarly, you can also consider refinancing to extend the term of your mortgage, which could help reduce your monthly repayments.
Once again, you’ll end up paying more interest over the life of your loan with this option, but it can give you more breathing space if you need it.
5. Come and speak to us
Last but not least, if you’re concerned about what’s going on with interest rates, inflation and/or how you’ll meet your home loan repayments, please don’t hesitate to get in touch with us.
Everybody’s situation is different. And we understand many of the ideas we’ve listed above might not suit your financial and personal situation.
So if you’re worried about how you’ll meet your repayments in the months ahead, give us a call today. We’d love to sit down with you and help you work out a plan moving forward.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.