How to prepare financially for the difficult times ahead
Financially, times have been tough — and don’t expect to get much better anytime soon.
Reserve Bank Governor Philip Lowe said a recession would not happen in Australia. Others think there’s a chance we could hit a brief recession sometime next year.
But one thing is certain now: millions of Australians are hurting because of the rising cost of living.
So, how can we prepare for the financially difficult times ahead? We asked three experts.
First of all, you should know that you are not alone
Before we get into it, National Debt Helpline financial adviser Deb Shroot says no matter how bad financial circumstances are, there’s always a choice. Even when things seem really bad.
“If you talk to a financial advisor, there’s always a choice,” he said.
Fundamentally, financial counselors are professionals who help those experiencing financial difficulties and their services are non-judgmental, free, independent and confidential.
“The options may not be all desirable, however, we can talk you through all the pros and cons,” said Ms Shroot.
“Then you can decide what the best next step is for you.”
He says its important not to wait for help.
“The sooner you get involved for help, the more options there are to you.”
He said people from all walks of life began seeking greater amounts of help following the hike in gasoline prices in February.
“So we were contacted from all different walks of life, people in all different situations,” he said.
Start preparing now, if you haven’t already
You should get your finances in order as soon as possible, according to financial planner Olivia Maragna of Aspire Retire.
He says it’s one of the best ways to avoid future pain.
It’s because it’s so easy for things to get out of hand in front of people take steps to control their finances.
“People – who don’t always deny it because they know it’s getting worse – leave it until later before actually tackling the issue,” Ms Maragna said.
“You don’t want to be in a position where you are forced to do something.”
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 pressured to follow interest rate hikes.
He said clients recently managed to score a 0.4 percent drop in their interest rates.
“I’ve found that from the time clients have done that, they’ve gotten better rates, at least a good 0.4 percent drop in their interest rates,” Ms Maragna said.
“It’s not changing the bank, it’s just asking for a better rate.”
He said those with mortgages should also contact their bank if they are struggling to make payments.
“Banks generally have processes in place for people who are in financial difficulty,” he said.
“They’re just going to go through the process with you, maybe put you on a payment plan or help 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 more months, but manage your budget can make you feel like you have a good grip on things.
That’s according to Di Johnson, lecturer in personal finance at Griffith University.
“Planning expenses, documenting expenses and debts can help in gaining a sense of control,” says Dr Johnson.
“Writing 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 with planning just by documenting them, to see what happen. is covered and priority to cut others off.”
See what you can reduce
Once all your expenses are listed in your budget, Ms Maragna says it’s a good idea to go over each item and look for a better deal.
That includes services such as electricity, internet, gas and subscriptions including streaming services and gym memberships.
“Don’t wait for interest rates to rise, it’s a matter of finding ‘where can we really reduce?’ “Said Mrs. 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 help coming anytime soon. This is something for the next six to 12 months that we should consider the new norm.
“Look at every dollar that comes out the door.”
Split large payments into regular chunks
“Switching on” larger annual payments like car registration or insurance and setting up monthly direct debits can give you a clearer picture of your finances, says Ms Maragna.
Dr. Johnson agrees. He says it also takes the mental burden off of routine expenses.
“So you can think more clearly about a broader goal,” he says.
Find more income through odd jobs and second hand sales
Cutting expenses is a fine and good thing. But in more difficult times, people need to find extra income.
“I think people have to really, you know, look beyond what you normally do during tough times,” said Maragna.
He says selling used items that are available on hand is a good way to earn “a few extra bucks”.
And then there’s the search for more paid work, including through online platforms and applications.
“Even the gig economy is in terms of people wanting extra money,” he said.
“You know, you can jump on these many platforms now and do work on weekends and earn a few hundred dollars extra on weekends.
“So I think people just need to explore all the options in terms of trying to stay ahead. Because like I said, we are not at the end of bad times, there is still more pain to come. It must be about thinking outside the square.”
Taking debt is not the answer
Taking on debt to cover budget shortfalls is one of the most common ways people get into financial trouble, says Shroot.
“For example, someone may not be able to pay their electricity bill, so they may get a loan. We usually find it starts what is called a debt spiral,” he says.
“There’s a high chance you might not be able to pay for it.
But when you have hungry kids, have to keep up with the internet to do homework or need gas to get to work, Shroot says it’s easy to overlook the dangers of going into debt more.
“If you need to feed your child, then you will do whatever it takes to do so, even if there are future consequences,” he said.
“So I think our message for that is to get help because there is emergency help.”
He said every state and territory has an emergency relief program.
“Where people can access fruit and other vouchers to fulfill those basic needs,” he said.
Savings are important. Even though it’s easier said than done
It would be great if everyone could click their fingers and have a healthy savings account.
But have cash is the key to managing uncertain financial timessaid Dr. Johnson.
“While it’s easy to say ‘have a savings buffer ideally for three to six months of spending’, we know that’s not always realistic,” says Dr Johnson.
“Many people have been dealing with cost of living pressures for years now, some for decades, and even if average household savings do rise, there are huge gaps in income and wealth equity in Australia.”
Ms Shroot said a three-month savings buffer was good general advice, adding that many people who contacted financial advisors recently experienced an unexpected change in circumstances.
“You’ll definitely be much better off, because you don’t know when this will happen,” he said.
“The general advice is that it would be better to have three months of expenses on hand, understanding that some people can’t afford to put money aside and just live paying checks to pay checks.
“So it’s possible, it may be very difficult. We don’t want people to feel bad about themselves or a failure if they can’t do that.”
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, he says talking about it can lighten the mental load.
“Some people feel like a failure if they can’t support their family, or ask for help with money,” he said.
“So even if it’s just taking the burden off your mental health, It’s highly unlikely that you won’t feel better after talking to a financial advisor.”
“Talk to a financial advisor, we are free, independent and confidential. Even if it’s just an idea, we are always happy to listen and even just help people deal with their thoughts about money.”
This article contains general information only. You should consider seeking independent professional advice with respect to your particular circumstances.
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