Inflation, gas prices and interest rates are on the rise. Here’s how to prepare yourself financially for the tough times ahead

Financially, times are pretty tough – and they aren’t expected to improve anytime soon.

Reserve Bank Governor Philip Lowe said a recession was not expected in Australia. Others think there is a chance that we will be hit by a short recession next year.

But one thing is certain right now: millions of Australians are hurting because of the rising cost of living.

So how can we prepare for the tough financial times ahead? We asked three experts.

First of all, you need to know that you are not alone

Before we get into the nitty-gritty, Deb Shroot, financial adviser at the National Debt Helpline, says that no matter how bad things get financially, there are always options. Even when things look really bad.

“If you talk to a financial advisor, there are always options,” she says.

Basically, financial advisors are professionals who help people in financial difficulty and their services are non-judgmental, free, independent and confidential.

“The options may not all be desirable, however, we can tell you about all the pros and cons,” Ms. Shroot says.

“Then you can decide what the next best step is for you.”

She says it’s important not to wait to ask for help.

“The sooner you commit to getting help, the more options you have available to you.”

She says people from all walks of life started asking for help in greater numbers following the increase in petrol prices in February.

“So we are contacted from all walks of life, people in very different situations,” she says.

Start preparing now, if you haven’t already.

According to financial planner Olivia Maragna of Aspire Retire, you should take the lead with your finances as soon as possible.

She says it’s one of the best ways to avoid future pain.

It’s because it’s easy for things to get out of control before people take steps to get their finances under control.

“People – who aren’t necessarily in denial because they know it’s getting worse – are putting it off before actually tackling the problem,” Ms Maragna said.

“You don’t want to be in a position where you have to do something.”

Financial advisers say there are always options, no matter how bad things look.(Pexels: Liza Summer)

Talk to your bank about your mortgage payments

Ms Maragna says mortgage holders should talk to their bank and negotiate a lower rate if they feel pressure from rising interest rates.

She says clients recently managed to get their interest rate lowered by 0.4%.

“I’ve found that out of the times when clients did that, they got a better interest rate, at least a good 0.4% drop in their interest rate,” Ms. Maragna said.

“It’s not changing banks, it’s just asking for a better rate.”

She said those with mortgages should also contact their bank if they are struggling to make repayments.

“Banks usually have processes for people in financial difficulty,” she says.

“They’ll just go through the process with you, maybe put you on a payment plan or help you with interest rates or things like that.”

Writing down your budget can help you feel in control

It might be tempting to put it off for a few months, but organize your budget can make you feel like you’re in control.

That’s according to Di Johnson, a personal finance professor at Griffith University.

“Spending planning, documenting expenses and debts can help build a sense of control,” says Dr. Johnson.

“Writing down your current expenses in terms of daily household expenses and all mortgage debt, personal loans, credit cards, buy now pay later, payday loans, loans from friends and family – can help plan simply by documenting it, to see what is already covered and the priorities for snacking on others.”

See what you can reduce

Once all of your expenses are listed in your budget, Maragna says it’s a good idea to go over each item and look for a better deal.

This includes services such as electricity, internet, gas and subscriptions, including streaming services and gym memberships.

Don’t wait for interest rates to rise, it is about asking “where can we really reduce? ” said Ms. Maragna.

“Check health insurance, see what you can reduce or reduce. Call each service provider to see what you can reduce.

“There doesn’t seem to be any relief any time soon. This is something for the next six to 12 months that we should consider the new normal.

Look at every dollar that comes out the door.”

Divide large payments into regular installments

“Smoothing out” larger annual payments like car registration or insurance and setting up monthly direct debits can give you a clearer picture of your finances, Maragna says.

Dr. Johnson agrees. She says it also relieves the mental load of regular expenses.

“So you can think more clearly about larger goals,” she says.

Find more income through odd jobs and second-hand sales

Reducing expenses is fine. But in more difficult times, people have to resort to seeking additional income.

“I think people really have to, you know, look beyond what you normally would in tough times,” Ms Maragna said.

She said selling available second-hand items was a good way to earn “a few extra bucks.”

And then there is the search for higher paying work, especially through online platforms and applications.

“Even the gig economy, so in terms of people wanting extra money,” she said.

“You know, you can jump on a lot of these platforms now and do weekend jobs and earn a few hundred extra dollars a weekend.

“So I think people just need to explore all the options to try to stay ahead. Because, like I said, we’re not at the end of the bad times, there’s still more of pain to come. It must be think outside the box.”

Getting into debt is not the solution

Going into debt to make up for budget shortfalls is one of the most common ways people get into financial trouble, Shroot says.

“For example, someone might not be able to pay their electricity bill, so they might take out a loan. We usually see which triggers what is called a spiral of debt,” she says.

“Chances are you won’t be able to repay that.

But when you have starving kids, need to keep the internet on for homework or need gas to get to work, Ms Shroot says it can be easy to ignore the dangers of taking on more debt. .

“If you need to feed your child, you will do whatever it takes to do so, even if there are consequences along the way,” she said.

“So I guess our message for this is to ask for help because there is emergency relief.”

She says every state and territory has emergency relief programs.

“Where people can access fruits and other goodies to meet those basic needs,” she says.

The savings are significant. Although it’s easier said than done

It would be great if everyone could snap their fingers and have a healthy savings account.

But having free cash is essential to manage uncertain financial timesexplains Dr. Johnson.

“While it’s easy to say ‘ideally have a savings buffer for three to six months of expenses’, we know that’s not always realistic,” says Dr Johnson.

“Many people have faced cost of living pressure for years, some for decades, and while average household savings are on the rise, there is a big difference between income and wealth equality. in Australia.”

Lady holding a wallet with 20 dollar bills.
It may seem like a luxury to many, but having a three-month savings buffer of living expenses can be a big help.(ABC News: Jessica Hinchliffe)

Ms Shroot says a three-month savings buffer is good general advice, adding that many people who contact financial advisers have recently experienced an unexpected change in circumstances.

“You’ll definitely fare a lot better because you don’t know when those moments are going to happen,” she says.

“The general advice is that it would be good to have three months of expenses, knowing that some people cannot afford to put money aside and live only from check to check.

“So it could, it could be really difficult. We don’t want people to feel bad about themselves or a failure if they are unable to do this.”

Talking to someone about your financial difficulties can help

Ms Shroot says it can be difficult to talk openly about your personal finances, especially when times are tough.

However, she says talking about it can relieve some mental burden.

“Some people feel a sense of failure if they are unable to support their families or ask for help with money,” she says.

“So even just unburdening yourself for your mental well-being, it’s highly unlikely that you won’t feel better after talking to a financial advisor.”

“Talk to a financial advisor, we’re free, independent and confidential. Even if it’s just an idea, we’re always happy to listen and even help people think about money. “

This article contains general information only. You should consider obtaining independent professional advice based on your particular circumstances.

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The ATO warns that you cannot claim more at tax time to help with the cost of living.

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