6 practical tips to help you through the cost of living crisis

Category: Australia & News

It’s almost certain that the current cost of living crisis is going to get worse before it finally starts to get better.

Latest data from the Australian Bureau of Statistics confirm that Consumer Price Index (CPI) inflation reached 6.1% in June – the highest figure for over 20 years.

7 News reported that the new Treasurer, Jim Chalmers, has suggested that inflation is set to go higher before, according to Trading Economics, averaging 3.5% in 2023 and 2.5% in 2024.

It helps to understand the causes of the current crisis

In simple economic terms, when goods become scarce, demand outstrips supply and prices rise. The Covid pandemic hit supply chains of goods all over the world, and it’s taking time for them to return to their pre-pandemic norm.

On top of that, extreme weather – floods and droughts – have affected internal supplies adding further upward pressure on prices.

With businesses still struggling to get back to pre-Covid profitability, wages are not rising in line with inflation.

The acknowledged macroeconomic weapon to battle inflation is higher interest rates, which increase the cost of borrowing and so suppress demand, until such a time as supply can be increased.

This was what prompted the Reserve Bank of Australia (RBA) to raise their base rate from 0.85% to 1.35% at the start of July 2022 – the third rate hike so far this year.

Thus, you have a perfect storm of rising prices, increasing borrowing costs, and wages not keeping up with inflation, which results in you having less disposable income.

In the light of this, read about six ways you can manage your finances to help you cope with the current crisis.

1. Have an income and expenditure plan in place

It’s always important to have a good idea of how much you’re spending set against your income. It’s even more essential in financially challenging times.

So, it’s worth taking some time to set up a simple income and expenditure spreadsheet. Your recent bank statements will provide you with an excellent starting point for this.

Just knowing your current state of play can be a big step forward and give you some valuable peace of mind.

2. Identify areas where you can save money

Rising prices for essential goods and services make it important to try and save money by reducing your expenditure elsewhere.

Once you’ve established what your monthly outgoings are, it should be a simple step to start identifying where you can make savings.

Check through your direct debit mandates to see if anything can be cancelled or reduced. Then review your discretionary spending and see if there are any obvious ways you can save money.

Additionally, if you have any big-ticket spending items lined up in the near future, maybe consider deferring or rescheduling these until the financial storm has passed.

3. Make sure you’re not paying too much tax

Your 2021/22 tax return is due by the end of October 2022.

If you normally don’t devote that much time to it, the current cost of living challenges mean that now is a good time to start focusing on this year’s return.

Make sure you take advantage of all the allowances and deductions you’re entitled to. You can read here about some ways you could potentially reduce your tax bill.

It may also be worth speaking to a tax expert about your 2021/22 return, especially if your tax affairs are complicated, or you run your own business.

4. Make sure everyone who needs to be is aware of the challenges

Based on the premise of “a problem shared being a problem halved”, you should look to involve your spouse or partner in the planning process to cope with the current financial challenges.

They should go through the same process as you with regard to their tax affairs to identify potential savings, as outlined above.

Additionally, they may well identify savings opportunities that you could have overlooked.

5. Shop around if you’re paying high interest rates

As you read earlier in this article, raising interest rates is one of the ways the RBA will try to reduce the rate of inflation, so it’s likely that you can expect more rises.

Higher interest rates mean increased borrowing costs. So, check the rates you’re paying on borrowing and see if you can reduce it.

If you have credit card debt, a balance transfer to a limited-period nil-interest rate account can give you some valuable breathing space while interest stops accruing.

It’s also worth checking your current mortgage arrangements, especially if you’re currently on a fixed-rate mortgage that is due to end in the near future.

6. Hunker down and see out the storm

The final tip is more about your attitude rather than any specific action you can take.

It’s important to remember that economic circumstances are cyclical. As a nation, we’ve been through periods of massive financial turbulence previously, and come through them.

Also consider that the worldwide pandemic was very much an unprecedented, once-in-a-lifetime event.

Given those facts, there’s a lot to be said for simply hunkering down, watching every cent, and waiting for the storm to pass. Because, as you can see from the history books, it will.

Get in touch

If you have any queries regarding your financial planning, or anything you’ve read in this article, please get in touch with us.

Please note

This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.

All contents are based on our understanding of HMRC and ATO legislation, which is subject to change.