By Louisa Sanghera, Director, Zippy Financial
We have seen interest rates bounce back up over the past three months and it is predicted that more increases are to come. If you are starting to worry about your finances, there are a few things you can do.
Check out this Reserve Bank of Australia (RBA) graph. It shows interest rates are currently lower, as of July 2022, than they were prior to May 2019. The current cash rate is nothing extraordinary, although it might come as a shock to newer borrowers, as we previously had not had a cash rate hike since November 2010.
There is no denying that some households are starting to feel the squeeze, and if you put yourself in that category, now is the time to consider implementing some of these measures.
1 – Start building a buffer
Interest rates will go up over the next few months. Economists from the big four banks are predicting it could increase to anywhere between 2.60% (Commbank) and 3.35% (ANZ) by November.
Therefore, it is 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, 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?
These subscription services could be costing you a lot more than you realise. The average Australian household spends $55 per month on entertainment subscriptions.
Next on the list is takeaway coffees. Six takeaway coffees a week cost about $27, which is about $120 per month or $240 per month for a couple. Instead, you can brew your own barista quality coffee at home for $30-$70 per month.
There is Uber Eats, Menulog, DoorDash, Deliveroo… if you are making a habit of it then it will really start adding up. And the best part about home-cooked meals is the leftovers for lunch the next day – making it two meals for the price of one.
3 – Shop around
A recent study from Choice found that Aldi is the cheapest supermarket. So that is a start when it comes to your weekly food bill, which is going up each month thanks to inflation.
Furthermore, an ING survey found that the average Australian family saves $114 a month by doing their shopping online.
But… it is not just the groceries that you can shop around for a lower price. Car insurance, home insurance, utilities, phone, and internet are all other monthly expenses that you can usually find a better deal on.
4 – Refinance
If you have not refinanced for a while, there is a decent chance you could get a better rate on your home loan.
But why refinance now if interest rates will just keep rising? Let’s say you refinance your variable rate home loan this month from 3.50% to 3%. Then if the RBA raises the cash rate by 0.50% next month, and your bank follows, your interest rate will then be 3.50%. But if you choose not to refinance and your bank follows the RBA, it will 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 line with the RBA.
Another option is to consolidate multiple loans such as car or personal loan into your mortgage to reduce your monthly expenses. It is important to note that if you do this you will 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.
You can also consider refinancing to extend the term of your home loan, which could help reduce monthly repayments. Again, you will end up paying more interest over the life of the loan, but it can give you more breathing space if you need it.
5 – Come and speak to us
If you are concerned about what is going on with interest rates, inflation and/or how you will meet your home loan repayments, please don’t hesitate to get in touch.
Everyone’s situation is different, and we understand many of the ideas we have listed might not suit your financial or personal situation.
If you are worried about how you will meet your repayments in the months ahead, give us a call. We would love to speak to you and help you work out a plan moving forward.
Phone: 1300 855 022
Email: clientservices@zippyfinancial.com.au
Disclaimer: This article contains information that is general in nature. It does not consider the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether in business, health or financial.
