It’s been a tough few months in Australia for our finances so far this year – with high inflation and interest rate hikes coming at us fast and furious. More of us are finding ourselves under greater financial stress and uncertainty and paying off a property has become very difficult with banks asking for interest rates around 7% and at the same time, inflation is running at a 32-year high of 7.8%.
All of this is seriously impacting household budgets and our finances. Households are already re-evaluating their budgets and making hard decisions. Last year, consumer spending was strong all through the year but by November and December, there was a 3.9% drop in retail figures and high inflation started to bite.
Clothing, footwear, personal accessories and department store retailing will take the greatest hit, with trade already decreasing by 14.3% in late 2022. However, Australians will have to budget around expenditure on food, with trade in this retail sector at its highest in almost three years, indicative of the inflationary price hikes commencing in 2022.
Alon Rajic, Founder of Money Transfer Comparison, says households and small businesses will make more hard decisions this year to cope with the new financial and economic environment – and he’s offered these Top 9 Tips to help you survive this year and keep your finances in better shape.
Top 9 Tips to Survive Financially in 2023
1) Move jobs for better pay or more flexibility: More Australians are choosing to leave their existing employment for a change of scenery or better workplace. The beginning of 2022 saw the highest annual job mobility rate in the last decade, with more than a million Australians changing employment and 2.1 million either choosing to leave or losing their jobs. The 3.1% rise in annual wage growth in Australia was outpaced by the increase in consumer prices at 7.8% by late 2022. It should come as no surprise that more than 12% of Australians are opting for jobs that allow more flexible work arrangements or a higher pay. We are expecting this figure to grow over the next 12 months.
2) More savings will go into high-interest savings accounts: Cryptocurrency crashes, share-market volatility, declining property prices, rising interest rates and skyrocketing inflation have turned many investment portfolios on their head, disrupting traditional ideas of safe-haven investments. In this year of uncertainty, more people will increase their savings – and will look for safe, high-return methods to help them. Research shows 47% of Aussies believe high-interest savings accounts and superannuation will be the best places to put their money and get a return on investment in the coming year. These two options outranked investment property, shares and crypto. Just 7% of those surveyed would put their money into precious metals, 18% into investment property, 11% into shares and 3% into cryptocurrency.
3) More Aussies will switch from traditional banks to non-bank fintech services offering more value: Even before the RBA began raising rates, banks were increasing fixed-rate loans in anticipation. As a result, loan rates are now sitting 4-5% higher than the RBA cash rate. More rate rises this year are likely to drive Aussies to seek out smaller non-bank fintech services which offer better deals, including lower exchange rates and fees, than traditional banks. These may include lenders, specialist international money transfer platforms, virtual credit cards, and insurers. Money Transfer Comparison’s own research found that nearly three quarters (71%) of Australians say they have lost at least some trust in banks due to their high loan rates and fees, and 74% would consider switching their accounts, loans or transactions to more affordable online services.
4) Mortgage refinancing will grow this year: With interest rates set to rise again in this first quarter of the year, it is no surprise that roughly 2 million Australians are intending to refinance their current mortgage. More home owners will look for a better deal on their mortgages, as two third of mortgagees will come off fixed-rate loans by the end of the year and feel the full impact of the last few months of rate increases. Home owners who refinance will not only seek a better interest rate, they are likely to develop a loan-repayment strategy with more flexible and multiple fixed-rate and variable loans to reduce their interest further and shorten their loan terms.
5) 2 in 3 Aussies won’t look at AUD movements when travelling or spending overseas: While many households will tighten their budgets this year, research reveals a majority are still willing to put money aside for travel no matter the direction the Australian dollar will go, after Australians were locked inside our borders for two years. If the Australian dollar dips, two-thirds (62%) of Australians would still travel overseas, two-thirds (63%) would still purchase products overseas and almost three-quarters (71%) would not avoid investing overseas, while 79% would not avoid gifting or donating money overseas.
6) Make passive income from personal assets. More Aussies will look to peer-to-peer services to generate a second and passive income stream by making valued and rarely-used assets available on rental platforms. For instance, Swimply, dubbed the Airbnb for backyard pools, allows Australians to rent their pool by the hour. Similar services have also been created for parking and storage spaces, motor vehicles and various kinds of chattel such as tools and machinery. Many Aussies will see these services as a way to make their rarely-used assets work for them, and are assisting the needs of others in the process.
7) 1 in 3 SMEs will seek financing to get through a tough year: Many small businesses have also been hit hard by inflated costs including supplier goods, wages and petrol. In fact, 72% of small businesses – who already survived through tough economic periods during the pandemic – have admitted they have been hit by rising expenses. A report on the top inflated expenses that businesses are challenged with found nearly one third (31%) are having difficulty paying suppliers and petrol, and 26% are struggling to pay wages. As a result, many businesses are likely to take out business loans to weather a tough year ahead.
8) Mixing business and personal finances to get through: As the risk of recession and higher interest rates climbs, new research reveals that business directors could borrow from their businesses or personal finances to survive, despite the potential risks to their financial security. In a potentially tough financial period, more than half (56%) of Australian SME owners either have, or would, borrow funds from their businesses to solve personal financial issues, while 3 in 4 (72%) would support their businesses using their personal savings or assets.
9) Consolidate debts: Borrowers will often take out a new personal loan to indemnify their existing debts, resulting in a single loan – and set of repayments – over a set period. By refinancing existing debts into a single loan, borrowers are afforded greater control over their finances. Debt consolidation simplifies the repayment process. In fact, it is the most popular reason for taking out a personal loan in Australia, with roughly 40% of Australians indicating this as their reason for acquiring a personal loan. Amid rising interest rates, borrowers should compare the interest rate for the personal loan against your existing ones to ensure that refinancing will be worth your while.
Advice Disclaimer: This article is intended to provide general information only, and not financial advice. Before acting on any information in this article, you should consider your individual and business circumstances, and seek independent and professional legal, financial, taxation or other advice to help you determine whether these actions are appropriate for your needs.
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