I, like many Aussies, spent this summer in a pleasant haze of ‘revenge spending’ on holidays, parties and going out – a welcome reprieve after several summers of rain and lockdowns.
Households with variable-rate loans are already feeling the pain. But perhaps the biggest shocks await those borrowers – including me – who took out ultra-low fixed-interest rate loans during COVID. Such borrowers – an estimated 800,000 this year – now face rolling off from mortgages with a ‘1’ per cent in front, to variable rates with a ‘6’ per cent in front. Ouch.
Sapping spending power by ratcheting up borrowing costs is the only blunt tool the Reserve has at its disposal to achieve this mindset shift for both consumers and businesses.The scariest prospect in personal finance is being unable to pay for the things you need to live. Are you currently spending less than you earn? Will you still be in positive cash flow when your mortgage repayments rise?
Insurances are another area many people overlook. Regularly review your coverage on health, car and home insurance. Increasing your ‘excess’ – the amount you agree to pay out of pocket in the event of a claim – will lower your ongoing premiums. Don’t pay for health insurance ‘extras’ cover if you don’t really use it. Explore a low ‘agreed value’ policy on your car insurance compared to a full ‘market value’ policy.Ask for a pay rise.