Budgeting while interest rates are rising

Homeowners across Australia have nervously faced 13 interest rate rises over the past 15 months – and most are left wondering if the pain is ever going to stop.

After all, every interest rate rise has meant increased mortgage repayments for many Australians – at a time when the rising cost of living is also jacking up the prices of utilities, groceries and other essentials. Challenging times, right?

Of course, it’s all too easy to panic about what this is doing to your savings and your finances overall – and what the future might hold. But the good news is, there’s a lot you can do to ease the burden. Starting with your budget.

Let’s unpack what’s happening with Australia’s interest rates and how to manage your financial situation.

Navigating interest rate rises

Although we never know what the Reserve Bank might decide to do, there are rumblings that the worst is over for interest rates in Australia.

If you fixed your home loan (or part of it) when interest rates were low, you might be coming out of that fixed period now or facing transitioning to higher interest rates over the next 18 months. Navigating that can be tricky if you haven’t prepared for it – or have had changes to your financial situation since you fixed your loan. 

One tactic is to use an interest rate calculator to find out how the interest rates you’re moving to might affect your mortgage, and the extra money you might need to factor in for repayments. And finding ways to spend less and cut back on your existing expenses can help.

Budgeting strategies for future stability

If you haven’t already got a household budget in place, now’s the time to create one.

Grab a pen and paper or use an online budgeting tool to calculate your income, from earnings you receive from your employer or a business, to money you might be getting from the government. Don’t forget to factor in income from investments or any side hustle you may have. 

Next, look at your outgoing costs. Often we don’t consider just how much we’re spending on expenses – and once you take stock you can easily see where you might be able to cut back. For example, you might ask yourself, “do I really need ALL these streaming services?” Could you perhaps cancel your gym membership and find a more affordable work-out option? Can you pack your lunch and cook at home instead of buying lunch or ordering takeaway? You might be surprised at just how much all of these incidentals add up to.

Tips to keep yourself financially secure

Once you have your budget down pat, you’ll have a clearer picture of your spending priorities and have a plan to follow to help ensure that you don’t run out of money each month. How to stick to your budget? Here are our tips:

  • Reduce credit card limits: It may make it easier to pay them off and there could be less temptation to buy things you don’t need.
  • Sleep on any big purchases: If you aren’t sure whether you should purchase something, have a rule that you wait a couple of days or a week. Chances are, you’ll decide you don’t really need it. 
  • Try a no-spending challenge: Commit to not spending on any non-essentials for a certain amount of time. It’s a great way to shift your money mindset – and save!
  • Review your bills: This means regularly ringing around to all your utility companies and actively asking for a better deal. You’d be surprised at what companies will do to keep your business – and this one step can save you thousands a year. 

Future proofing: Budgeting amidst climbing interest rates

Managing tough financial times can put you squarely in survival mode: meeting your repayments, paying for day-to-day essentials. That said, planning for your retirement and future proofing your financial situation is equally important.

Some ways options to consider:

  • Negotiate a pay rise: If you’re in a position to do so – it’ll immediately bring in extra income you need. 
  • Pay down debt: If you don’t want to be heading into retirement owing money or still paying off your mortgage.
  • Top up your super: You can make up to $110,000 on non-concessional (after tax) contributions in each financial year. 
  • Consider having life insurance: This can give you peace of mind knowing that if the worst happens to you, your family have a form of financial protection.

How to set up an emergency fund

Once you’ve worked out your budget, the next thing on your list could be setting up an emergency fund. Having a buffer to dip into when times are tough is key.

How much should you have in your emergency fund? Most experts suggest saving at least three months’ worth of expenses. So if your monthly expenses are roughly $4000, your goal would be to save a buffer of $12,000 to use in a crisis.

By the way, this isn’t for that awesome Fiji deal you just spotted on a travel website – it’s money you’re stashing away for a real crisis, like a family emergency. 

Building a second income stream

Hello, side hustle! It’s estimated close to one million Aussies have a side hustle or second job – and it’s a great way to boost your cash flow.

Here are some ways to get on board the “side hustle” train:

  • Sell items you don’t need online through platforms like Facebook Marketplace or Gumtree
  • Freelance on the side, or become a virtual assistant
  • Market your skills on websites like Fiverr or AirTasker
  • Become a  driver for a few hours a week
  • If you have a unique skillset create an online course
  • If you have a spare room or property, rent it out.

If you’re not sure of the tax implications of having a side hustle or a second job, check out the ATO’s rules and regulations or speak to your financial advisor.

Plan to budget

Whether interest rates continue to rise or we’ve hit the peak, now is a great time to create a strict budget, slash your expenses and future proof your finances as best as you can, with the resources you have available to you.

Doing this won’t just help you sleep at night – it’ll may also ensure you’re in a better position to meet all your financial obligations going forward. If you’re not sure where to start, chatting to a financial advisor can help you map a path forward that works for you and your situation. 

Want to make sure you and your loved ones are protected during challenging financial times? Home insurance provides cover to protect the house, valuables and contents. It cannot be used in the event of financial hardship. Talk with our friendly team or head online and see how we can help with your insurance needs. 

This article is an opinion only, provided for general information purposes and shouldn’t be considered or relied upon as professional or personal advice. If you have legal, tax, or financial questions, you should contact an appropriate professional.