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How to Budget for the Rising Cost of Living


Having a solid budget is crucial to building financial resilience, and as rising rates continue to put pressure on household finances, it could help to look at ways to save more and spend less.

Fortunately, there are ways you can help to relieve the stress on the household budget and build financial resilience.

Understand your current financial situation: Start by evaluating your current income, expenses, and debt obligations. Review your budget to see where your money is going and identify areas where you can cut back if necessary.

Assess your debt exposure: Make a list of all your debts, including mortgages, car loans, student loans, credit card balances, and personal loans. Note the interest rates for each debt.

Build an emergency fund: Having an emergency fund is crucial to protect yourself from unexpected financial shocks, such as job loss or medical emergencies. Aim to have three to six months' worth of living expenses set aside in a readily accessible savings account.

Prioritize high-interest debt: If you have multiple debts, focus on paying off those with the highest interest rates first. By reducing high-interest debt, you'll be less exposed to interest rate fluctuations.

Refinance variable-rate loans: If you have variable-rate loans, consider refinancing them into fixed-rate loans. This can provide more stability in your monthly payments, even if interest rates rise.

Plan for increased mortgage payments: If you have a variable-rate mortgage or an adjustable-rate mortgage (ARM), be prepared for potential increases in your monthly payments if interest rates go up. Review your mortgage agreement to understand how rate adjustments could affect your payments.

Consider a buffer in your budget: When budgeting, assume a slightly higher interest rate than the current one. This can help you prepare for rate increases and avoid any budgetary strain when rates do go up.

Reduce discretionary spending: Look for areas in your budget where you can cut back on non-essential expenses. Redirecting these funds toward debt repayment or savings can provide a cushion if interest rates rise.

Stay informed and be flexible: Keep an eye on economic indicators and central bank announcements to anticipate potential interest rate changes. Be prepared to adjust your budget and financial plans accordingly.

Immediate need: If you urgently need a car for work, family, or other essential purposes, waiting for interest rates to potentially decrease might not be feasible. In such cases, financing the car with a loan can help you acquire the vehicle when you need it.

Comparing financing options: As interest rates rise, it's essential to shop around for the best finance deals. Comparing interest rates, loan terms, and fees from multiple lenders to find the most affordable option that fits your financial situation is vital.

At Morris we take the guess work out of choosing the right deal for your situation. Our experienced team uses our network of financiers to ensure you’re getting the best deal. Speak to your own dedicated financial expert by calling the team on 1300 4 MORRIS today.