With rising rates putting pressure on household finances, it could help to look at ways to save more and spend less

So…the era of rock bottom interest rates is finally coming to an end.

The Reserve Bank of Australia’s (RBA) decision on 3 May to raise the official cash rate by 0.25% to 0.35% is the first increase since late 2010.

With Australia one of the most highly leveraged countries in the worldⁱ and the average mortgage for owner-occupied properties standing at almost $600,000 – an increase of 18% over the past yearⁱⁱ – any increase in home loan repayments could see millions of householders scrambling to pay the bills.

Fortunately, there are ways you can help to relieve the stress on the household budget.

If you have the flexibility, you could adjust your home loan – either by fixing part of your mortgage to reduce the impact of further rate increases, or by reducing your repayments if you’re paying more than the minimum required (although bear in mind this means you’ll take longer to pay the loan off and pay more interest over the life of the loan – so, in the long run, this may not benefit you).

Or you could look at where you might be able to make other savings in your household budget.

Three steps to creating a budget

Spend less, save more. It sounds easy. But it can be tough to find ways to cut back, particularly when you need to allocate more of your income to mortgage repayments.

The best way to start is by creating a budget.

A budget is a great way to set down how much you’re spending (your outgoings) and how much you’re getting in income (your incomings).

1. 1. Calculate your income. Include everything – any money you earn from an employer, any money you receive from the Government and any money you earn from investments.
   2. Work out your expenses. Look at what you spend and don’t miss anything out – you might be surprised at what you could cut back on.
   3. Use an online budgeting tool. AMP’s Budget Planner Calculator or MoneySmart’s Budget planner can help you work out where your money is going.

Ways to cut your spending

You could divide your spending into different buckets – essentials like home loan repayments, grocery bills, utilities, transport and medical expenses – and discretionary spending like eating out, travelling and leisure activities.

Whether it’s regular payments or your entertainment spend, there could be ways to save more as interest rate rises start to bite.

• • Could you shop around for a better deal on utility bills like gas, electricity and water?
  • Could you drive a bit less or even consider whether you need a second car if you have one?
  • Could you shop at a more affordable supermarket or buy in bulk to make savings?
  • Could you cut back on paid subscription services in favour of free TV-on-demand services like ABC iView?
  • Could you take advantage of cheaper deals when going out like midweek specials at local cinemas and restaurants?
  • Could you look at cancelling memberships you’re not using in favour of cheaper options – instead of the local gym you could take up cycling or running.
  • Could you manage any other debts better by consolidating them into a single loan so you’re paying less interest?

We understand that even with a strict household budget, it can still be difficult to make ends meet, particularly if your home loan repayments are increasing. We are here to help.

©AWM Services Pty Ltd. First published Jun 2022

i OECD, Household debt 2022

ii Borrowing big: Australia’s average mortgage size is now just shy of $600,000. Mozo. 19 Jan 2022