What to Do with Rising Interest Rates 2023

MANAGING YOUR MORTGAGE

The Reserve Bank of Australia (RBA) dropped interest rates to historic lows to encourage spending during the COVID-19 pandemic. However, this, coupled with government liquidity running continual deficits and the RBA keeping interest rates down for too long, has resulted in too much money in the economy. Add to this the supply problems across energy, fuel, food, and employment, and we are facing a calamity of too much liquidity, leading to rising prices. The government must slow down our spending and unfortunately, the only lever the RBA can use is interest rates.

Where are Interest Rates Going?

The RBA Governor has indicated that he does not know where interest rates will go… so it's best to prepare for the worst-case scenario. Look at your budget and identify your priorities, such as health insurance, private school fees, or your holiday account. Determine where you need to cut back or reallocate your spending to ensure you can manage.

If you have a mortgage, this means you need to pay attention, as you are in the demographic that is primarily responsible for slowing down spending. Here are some things you need to do to prepare for rising interest rates.

1. CUT BACK ON PERSONAL SPENDING

The number one area you should look at is your non-essential spending. This includes things like eating out, coffee, Ubers, and luxury items like going to the movies. Start cutting back wherever you can.

2. REVIEW YOUR BILLS

Next, consider your bills and utilities, such as electricity and telephone bills. See if you can get better deals and switch plans to save money.

3. ASSESS YOUR INSURANCES

After that, take a look at your insurance policies. See which ones you need, and which ones you are over-insured for. Make adjustments accordingly.

4. REVIEW YOUR GROCERY EXPENSES

Lastly, look at your grocery expenses. Consider shopping at cheaper stores or going to local markets. Everyone's circumstances are different, so assess what works best for you.

What to Do if You Are Struggling

If you are struggling, speak to your broker, accountant, financial planner, or anyone who can give you advice on how to reallocate your income and expenses. Look for a cheaper mortgage, as all banks are currently raising rates. If you are going to miss a repayment, contact your bank and let them know your plan. Communication is key to negotiating a solution.

Be prepared and make changes today!

The RBA is out to punish those with mortgages by increasing interest rates to slow down the economy and reduce spending. However, with proper preparation and budgeting, you can weather this storm. Cut back on discretionary spending, review your bills and insurances, and assess your grocery expenses. Determine your priorities and allocate your spending accordingly. If you are struggling, seek advice and communicate with your bank. Remember, this is a recovery point from COVID-19, and although it may take longer than expected, it is not the end of the world.

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