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  • Writer's pictureVictoria Wallis-Smith

The battle against rising costs

Rising mortgage repayments are continuing – and there’s not been much relief at the petrol pump or supermarket.

Understandably, households are nervous about how to weather these rising costs.

Rising Household Costs. Money Coach. Budgeting.

To make matters worse, the RBA (Reserve Bank of Australia) has warned “that further increases in interest rates will be needed over the months ahead”. Note the plural on “increases”.

But we’re not getting into how much higher rates might go, or when. This is money coaching with practical steps that you can take – right now – to battle increasing household costs.

How do rising interest rates affect you?

Given the RBA has increased the cash rate nine times since May 2022, you’ve probably got a good handle on how an increase in your mortgage interest rate affects you.

But let’s take a quick look at the numbers.

A 1% interest rise means an extra $1,000 per year in interest for every $100,000 owing on a home loan.

Based on an average home loan in Australia of approximately $604k, a 1% interest rate rise means your repayment increases by approximately $500 each month – that’s on top of your current minimum repayments.

And this is in addition to the rising cost of groceries, petrol and everything else.

On a fixed rate?

Over this year, the RBA expects more than 800,000 households will fall off fixed rates on to more expensive variable rates – you might be moving from an interest rate at around 2% to something closer to the mid-5%.

That’s going to hurt!

Should you be worried?

Well, that depends…

  • If you're living paycheck to paycheck – rising costs could impact your ability to make loan repayments (or rent), pay bills and buy groceries. Time to take urgent action.

  • If you have surplus cashflow to put towards savings and debt repayments – interest rate rises might slow progress on your savings and debt goals. Review your cashflow.

  • If you’re one of the lucky Australians, thriving in your financial life with no debt – higher interest rates mean you can earn more on your savings. Your hard work has paid off.

Taking action

While finding an ‘amazing’ home loan deal is unlikely, it’s important to keep things in perspective and to take action. Don’t bury your head in the sand and hope it’ll be okay – help is available, but you have to make the first call.

Speaking to your bank or broker is a good first step and ask for a rate review.

A recent client called their bank and had their rate reduced from 5.5% to 5.12% – that's a saving of 0.38%, so making that call can be a valuable exercise.

Your bank or broker can also help you assess if refinancing is an option.

Have a good look at your finances and get a handle on your cashflow – there’s never been a better time to ensure every dollar you spend is being put to good use.

Use the quadrant method to actively reduce or eliminate any unnecessary spending by assigning every expense to one of the of the following:

  • Essential – the things you need.

  • Important – include values-based expenses.

  • Wants – but don’t really need (hint: can your reduce these expenses?)

  • Careless habits – that don’t bring joy (hint: can you eliminate these expenses?)

For essential expenses – things like your phone plan and utilities – call your provider to ask for a better deal.

Try setting a target to shave say 5% off your total expenses – you’ll be amazed how trimming a bit here and there can add up:

  • Reduce the subscriptions you have – use free-to-air services instead.

  • Cut the cost of groceries by shopping at low-cost stores like Costco or Aldi and buying own brands.

  • Plan your meals and do the grocery shop online – saves on petrol and temptation.

  • Save on fuel by carpooling to work / kid’s activities – it might feel uncomfortable to suggest this to a friend but more than likely they’ll appreciate it just as much as you.

All these little things can make a difference, and you may find yourself in a better position than you realised once you’ve had a little spring clean of your finances.

Budgeting – a different approach

It’s never the sexy answer but a cashflow plan – a budget focuses on planning ahead – is a great tool to have as you battle rising costs.

Having a good understanding of your cashflow also lets you check what buffer you have against further interest rate rises – by pre-empting it, you maintain control, and being on the front foot can help reduce your stress. And less stress is what we all want.

And there’s no better time to start than right now – so what are you waiting for?

Need more help?

If you’re concerned about rising household costs and how to get a handle on your expenses – and let’s face it, who isn’t – money coaching can help you.

At Nutshell Money we want you to focus on living life, not tracking every dollar. To find out more about money coaching with Victoria Wallis-Smith use the link below.


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