Five tips to protect your household budget from surging inflation

Paying off debt and reviewing your budget could help you address the rising cost of living.

Paying off debt and reviewing your budget could help you address the rising cost of living. Photo: TND

With global supply chain issues and the war in Ukraine pushing up the cost of living, now is the time to make sure your household budget is protected.

Petrol prices have already soared above $2 per litre, and customers of major supermarket chains such as Woolworths have been paying 2 to 3 per cent more for their groceries since the start of the year.

Canstar financial expert Steve Mickenbecker said the cost of personal finance products, such as mortgages and insurance policies, are also going up – meaning reviewing our budgets has become an imperative.

“There’s almost no question: Interest rates will go up, [and] premiums on general insurance policies will go up as a result of floods and bad storms,” Mr Mickenbecker said.

“So it’s important that you really start planning for it right now.”

Here are five tips to protect your money from inflation.

1. Set up your household budget

Before you can protect your finances, you first need to work out what’s coming in and out of your bank account.

Chronos Private principal adviser Chris Giaouris said it’s hard to protect your finances if you don’t understand them.

“If you know you’ve got X amount in school fees, you’ve got X amount in mortgage repayments, you’ve got X amount of living expenses – whatever it might be, it’s a lot easier to plan [with a budget],” Mr Giaouris said.

Mr Mickenbecker said having a plan will make it easier to get ahead financially, which will help you weather financial shocks whenever they arise.

2. Shop around

As the country comes out of hiding from COVID-19, Australia’s record-low interest rate era is coming to an end.

Mortgage repayments can be one of your biggest regular expenses, so keep an eye out for better rates.

For example, Mr Mickenbecker said you could save up to $314 a month on a $500,000 home loan by switching from a rate of 2.99 per cent to 1.77 per cent.

“Try saving that in your household budget on the grocery basket – not possible,” he said.

And if you do manage to get a lower home loan rate, don’t increase your repayments; instead, put aside the savings for a rainy day, Mr Mickenbecker said.

With the recent New South Wales and Queensland floods expected to drive up already rising insurance premiums, he said you should also use your annual car or home insurance renewal notice as a reminder to seek quotes from other providers.

“Make sure you’re comfortable that you’re covered for the things you need, but you can get just as good cover for a lot less on many occasions,” he said.

“Never let an insurance policy just renew automatically without doing the research.”

3. Separate your bank accounts

Some people might have enough self-discipline to manage their income and expenses with one bank account.

But Mr Giaouris said creating separate bank accounts for different purposes will add some structure to your saving and spending habits.

He said people often spend more money than they intended to, and then don’t have the savings they thought they would have when they need to pay for things like school fees.

Having separate accounts for different expenses and savings goals could help you keep better track your money and prevent any “leakage”.

4. Pay off your credit card

Mr Mickenbecker said credit card debt is one of the most expensive debts you can have, so it’s best to eliminate it as quickly as possible.

Canstar data shows the lowest available rate in Australia on a non-rewards card is 7.49 per cent, while the average is 13.61 per cent.

“It’s very expensive debt, so get your credit debt down so that you don’t have that big repayment over your head when the time comes for interest rates to go up,” Mr Mickenbecker said.

But make sure to leave behind some savings.

5. Create a savings buffer

Setting aside money now is the best way to help yourself in a future financial pinch, Mr Mickenbecker said.

Financial planners typically recommend saving at least three months’ worth of living expenses.

But Mr Giarouis said some of his clients save more for peace of mind.

“We work with a lot of clients who like to have large cash saving buffers, because it just helps them sleep better at night.”

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