7 tips to combat the impact of inflation on your household budget this year

Inflation and increasing interest rates are impacting the cost of living in Australia and globally – the consumer price index rose by 3.5 per cent in the 12 months to the December 2021 quarter, and by 1.3 per cent this quarter.1 Prices are continuing to rise across the country, from your takeaway coffee and your weekly grocery bill, to petrol and even your mortgage repayments.

Below, I offer my advice to combatting the impact of inflation on your household budget in 2022 and reducing cost pressures, from fixing your mortgage rates to getting better utility rates and DIY meals and entertainment.

1 – Fix your mortgage rates.

Your home loan interest rate is the interest charged on the money borrowed from your lender and is arguably the biggest pain point for mortgagees. Switching to a lower-rate mortgage for up to five years can make a tremendous difference and save you thousands of dollars over that loan period. Finding a great rate will be just one of your considerations when searching for a home loan. You will also want to consider the suitability of the repayments and term, and the fees associated with each home loan, before making a decision.

2 – Consolidate your debts to reduce interest.

Once you have fixed your mortgage and found some financial wiggle room, you can consider transferring personal loan debts into your mortgage to drastically save on interest charges. Home loan interest rates are usually much lower than any other type of loan and, if you have an existing home loan, you can consolidate debt by simply increasing your loan amount by the available equity in your property. Just ensure you retain 20 per cent in equity to avoid lenders mortgage insurance. If you don’t have a mortgage, consider secured debt consolidation loans for the lowest interest rates. Always compare loans to find the best option available before applying for a loan.

3 – Improve your household utility rates.

Outline all your spending across a month to determine where there may be opportunities to save money or negotiate a better deal. One of the most important actions to take is to cancel subscription services you don’t use. Negotiate a cheaper mobile plan with your current provider or consider switching providers if there are more affordable deals on offer for new customers. Big spending periods each year, such as Christmas, will often see significant discounts and deals on rates for the upcoming year. Search for online deals and joining fees, or coupons and codes when buying or applying online. You can also trim your budget across your water and energy bills by looking for free energy days, free water hours, or other time-specific offers that usually come with many utility plans. Combining this with careful use of showers, baths, and home lighting can reduce your energy bills significantly. You could also consider investing in solar energy. While it is a large expense at first, you can reap significant savings down the track and cut your energy bills by hundreds.

4 – Create a full and complete budget plan.

A budget plan is an accounting tool that allows you to track short, medium, or long-term financial goals. You can use a budget plan to save money or pay off debt. It is also an effective way to see how much money you have coming in and going out each week, fortnight, month or year, to help you understand and take complete control of your finances.

5 – Open a high-interest savings account.

Interest rates are on the way up. A high-interest savings account (HISA) is a type of savings account offered by banks with competitive introductory interest rates. A HISA is similar to a normal bank account, however it will give you better returns for not taking money out of your account and letting the bank accrue interest on it as well. These savings accounts will often also offer bonus interest when certain savings conditions are met and use compound interest calculated daily, and paid monthly.

6 – Maximise your tax refund and make additional contributions to your superannuation.

Tax deductions can be made for certain expenses related to your income at the end of each tax year. I recommend speaking to a registered tax agent to help you identify the deductions you may be eligible for. Your tax return is a constant in your career and learning how to maximise your tax refund early on in your working life will be a great advantage to help you fulfil long-term financial goals.

7 – Shop around for better personal insurance deals.

Check whether your health, car, and home and contents insurance policies still meet your circumstances. For instance, if your property is on a hill, you are unlikely to require flood cover on your home and contents insurance. Compare these policies with those offered by other insurers to find out if you are on the most competitive premiums. Try to negotiate with your insurer on your premiums – and consider going on higher excess prices to reduce your premiums. A general insurance broker can help you find the most appropriate insurance cover and maximise your savings.

Learning how to make money and save money are important foundations for financial freedom, and many Aussie households are not only feeling the necessity of budgeting and saving money in 2022, but the independence and personal strength that comes with it. Once you know how to maximise the amount of money you earn, you can begin looking at ways to save money and truly get the most from your wealth.

Helen Baker
Helen Baker

Helen Baker is a financial adviser, author, speaker and spokesperson for online finance information platform Money.com.au. Helen has a passion for empowering Aussies to find financial freedom through strategic planning and goals-based financial advice. She has worked as a qualified financial adviser since 2009 and was a finalist in both the Financial Planner/Advisor of the Year and Women’s Community Program of the Year categories in 2017 as well. For more information, visit Money.com.au.

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