Navigating the rising cost of living

The rising cost of living is being felt across households worldwide and us Aussies are no different.  The Reserve Bank recently raised concerns about the escalating burden of mortgage repayments, indicating that nearly 10 percent of household disposable income is currently allocated to mortgage payments—the highest proportion ever recorded. This means, 10% of what we previously had to use towards non-essential spending like socialising & entertainment, is now going towards loan repayments.

The surge in mortgage repayments can be attributed to the RBA's response to curb inflation. Over the past year, the RBA implemented 12 rate hikes, elevating the cash rate to 4.1 percent from a record low of 0.1 percent. Although these moves were aimed at taming inflation, they inadvertently escalated the cost of borrowing, causing a ripple effect on mortgage repayments.

But it’s not just increasing loan repayments that are chipping away at our disposable income.

Transportation costs across Australian households have surged, with fuel prices being a primary factor. The increase in global oil prices, coupled with other factors like supply chain disruptions and increased demand, has led to higher fuel costs. So not only is the fuel you need for your daily commute costing you more, the Uber driver you use after your ladies lunch, and the trucks delivering the goods we buy in shops, are all costing more due to these increased transportation-related costs.

Rising food prices directly affect a household's grocery budget, putting additional strain on finances. Fluctuations in food prices are largely influenced by factors such as supply chain disruptions, climate change affecting crop yields and global market dynamics. These all have a flow-on impact to our wallets.

However, there are steps you can take to soften the blow of the cost of living squeeze. Addressing the challenges of increasing mortgage repayments and the broader cost of living requires proactive financial management and strategic approaches. Here are seven ways you could ease the strain:

1.       Budgeting and tracking expenses:

Not everyone is a fan of the B-word but think of a budget as a tool that tells your money where to go, rather than wondering where it went. Tracking your income and expenses is an important part of having a comprehensive overview of your household expenses. Without a clear budget or tracking your spending, it’s very easy to have an unrealistic perception of your financial health.

2.       Cut unnecessary expenses:

Reviewing your spending habits and eliminating unnecessary expenses, such as those unused subscriptions or gym memberships, will add up quickly. If you're not ready to commit to cancelling, consider putting these subscriptions on hold or rotating between them, rather than having all subscriptions active at the same time.

3.       Shop smart and use discounts:

Every good financial strategy needs to be realistic. Instead of attempting to completely cut out all non-essential spending, a more effective approach is to shop smarter, making your dollars go further. Start by planning out your purchases with a wish list to curb impulsive buys. Additionally, seize opportunities to save by taking advantage of sales, shopping around for the best price, using coupons, utilising cashback sites, and participating in loyalty programs. These smart money moves can help you make thoughtful and cost-effective purchases without feeling like you're depriving yourself.

4.       Save on housing costs:

If your home loan is one of the 880,000 coming off a fixed rate this year, you’ll no doubt be facing an increase in your repayments.  Taking proactive steps such as negotiating your interest rates, exploring refinancing options and leveraging bank benefits like offset accounts are practical strategies to help you minimise your housing expenses and put dollars back in your pocket. 

5.       Improve energy efficiency:

Implementing energy-saving measures is a smart way to reduce utility bills and save on energy costs. Simple actions like turning appliances off at the wall and replacing old, inefficient appliances with new energy-efficient ones can make a significant difference. Additionally, you might even qualify for government rebates by making these energy-conscious upgrades, rewarding your efforts to save both energy and money.  To see what rebates are on offer check out  www.energy.gov.au

6.       Hack your grocery bill:

Make your grocery bill go further by planning ahead. Meal planning is a game-changer, ensuring you buy only what you need.  Begin by "shopping your cupboards" first, taking stock of what you already have to use and incorporating those items into your meal plans. Create a list before heading to the grocery store, and stick to it to avoid impulsive purchases.

7.       Get creative with cost-conscious fun:

If you're feeling the pinch, it's likely your nearest and dearest are feeling it too. The good news is you don't have to sacrifice fun for frugality. Embrace frugal or free activities by swapping your usual go to social outings, for low-cost alternatives that are kind to both your wallet and your well-being. After all, the best things in life are often free—or at least, they don't have to cost a fortune!

When times are tough, it’s important to be kind to yourself and remember that tough times don’t last. If you have to put some of your bigger saving or investing goals on hold in the short term to cover your day-to-day needs, that’s ok.

By incorporating some of these practical tips, maintaining a proactive mindset and getting creative with your own spending, you can soften the blow of the rising cost of living. Stay empowered, stay informed, and keep striving towards a brighter financial future.