Worried about rising interest rates? Here are 5 things to do today

However, the prospect of what happens after that is troubling. The higher costs will eat into my monthly savings buffer, either delaying my retirement or meaning I retire with less.

At some point, it also meant that I had to reduce my standard of living – a position many borrowers have experienced recently.

The degree of fear of what is to come is, in fact, the emotional response Lowe expects to elicit in borrowers.

But Lowe doesn’t just want us to wallow in fear. He also wants us to take action, reduce non-discretionary spending and tighten our belts as best we can. Collectively, these actions will remove demand from the economy, which will help to curb price pressures.

So, here are five things you can do today to help you navigate what’s to come.

Remind yourself that it could be worse

The good news is that interest rates are only rising because of the underlying forces of our economy.

Unemployment is at its lowest in nearly half a century and, as long as you keep your job, you have the income to continue funding your mortgage.

Homeowners may also believe that there is, for most people, real psychological value to be had in finally being on the ladder of secure housing ownership.

Don’t think about tenants, who are also facing rising cost of living with less housing stability.

Run your scenario

That being said, a rate increase would be detrimental. Use the MoneySmart Mortgage calculator to run several scenarios.

I did my sums this week. My monthly mortgage payment remains at $2599. If I switched to one of the best variable rate loans available on the market (around 2.59 percent), I would be paying an additional $300 a month.

If the cash rate rises to 2.5 percent – ​​which most economists expect – it pushes the lowest variable rate product to 3.74 percent, and I need to find another $733 a month. I’m hoping this will be at least what I’ll be dealing with the middle of next year, when my fixed-rate period ends.

If the cash rate goes up to 3 percent, I’ll be out of pocket an additional $932 per month. Etc. At some point, my monthly budget surplus of around $1500 would be exhausted, and I had to take action.

Load

Make a list of expenses you can throw away

Worst case scenario, I could stop contributing extra to my pension, even though that strategy offers some of the best tax breaks in town.

My $386 a month gym membership can get a cut, though I might prefer to sacrifice my super to ensure I arrive into retirement in peak health. My vacation budget of $500-ish a month can also be reduced – I have to Zen at home.

After that, my budget already looks pretty empty. I only budget $150 per month for eating out and $20 for alcohol.

There are also private tuition fees to pay, but I’d rather switch to a higher paying job than sacrifice that, which brings me to point 4…

Think about an alternative employer or job

Australia’s historically tight labor market is a key driver of higher interest rates, but it also provides opportunities for borrowers, particularly highly skilled workers.

Now is the time to dive into the job market to investigate what alternative employers are paying and/or ask your boss for a raise.

Start tracking and cutting expenses

Load

Shop for interest rates on your mortgage. Review and compare insurance premiums and coverage at least once a year (and have a policy with the highest excess possible).

Use comparison sites for energy like energymadeeasy.gov.au or, for Victorians, compare.energy.vic.gov.au (and don’t forget to log in today and apply for your $250 power-saving bonus!).

By far the best way to identify unnecessary expenses is to start tracking them in whatever way works for you. It can be a spreadsheet or just a good old pen and paper. You can use my resources at jessicairvine.com.au/resources.

Knowledge is power and knowing where your money is going today will put you in the best position to find savings tomorrow, as needed.

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