Official figures released this week show that inflation has reached a record 5.1 per cent over the last year. That is the highest since June 2001 when prices rose 6.1 per cent after the Goods and Services Tax was introduced. 

But the pain won’t end there. Interest rates seem certain to rise – maybe next month. The best date seems to be  on June 7 – two weeks after the federal election. 

Rents are also going up in leaps and bounds – 13.8 per cent in capital cities and 20.2 per cent overall.

Finder money expert, Rebecca Pike says: “After years of low inflation, Australia is seeing inflation again. In fact, the latest official figures are predicted to be the highest since the GFC.”

So at a time when inflation is rising faster than wages what can you do to minimise the impact?

Ultimately it depends on what prices are going up the most. If non-discretionary items such as bread, rent, electricity, petrol and healthcare increase more than discretionary items such as restaurant meals, motor vehicles, and holidays then there is a problem, particularly for low-income households. 

Over the last decade, non-discretionary items rose 26% compared to just 12% for discretionary items that we can put off buying. 

While any increase in the cost of living is going to be tough if your wages aren’t increasing at the same rate, there are things you can do to minimise the impact.

Home Loan Experts says that you should assess your situation to establish the position you would be in if interest rates increased. Knowing where you would stand can help you find a solution so that you end up in a better financial position.

If, after assessing your position you find that you cannot afford your current repayments then it might be in your best interests to refinance to a lender that offers a lower fixed interest rate. 

Melbourne based mortgage broker Andrew Kostanski of Andine Financial Group Ltd says that you need to be quick: “By the time people catch up to what’s happening in the market place it’s too late to fix your rate.”

Every couple of days he is getting notifications from banks saying that they’re changing their rates. 

Mr Kostanski says: “I’ve been saying to people that interest rates are going to go up. Up until two months ago, you could fix for less than 2% but now clients have missed that window of opportunity.”

He adds that when banks approve your loan they actually approve it for 3% above the current interest rate so if the current rate is 2.5% they will assess your mortgage application based on an interest rate of 5.5%.

Although deposit rates have not yet started rising, he recommends that those on fixed incomes save any money that they can. 

“It’s always a good time to save and 25 years ago property was four times your income but now it’s eight times and you’re getting further and further behind.”

Ms Pike agrees: “If you’re struggling to save money or keep up with your monthly outgoings, shopping around for better deals on some of your regular expenses is a good place to start.”

She recommends doing your grocery shopping at night.

“Fresh produce often goes on sale later in the day to avoid it going to waste. Sometimes you’ll be able to grab things like fresh meat and bakery items for half price.

“Always have a shopping list before hitting the grocery shops to prevent you from buying things you don’t necessarily need and don’t go shopping when you’re hungry to avoid picking up impulsive snacks.”

She suggests shopping at Aldi, which we have also found is cheaper than Coles and Woolworths.

She adds that it is important to know what money is going in and out of your account so you can budget accordingly.

He says it’s important not to live beyond your means and if you’re on a fixed income you shouldn’t stretch yourself.

“There’s no point putting every dollar into your house if you’ve got sheets for curtains.

“Once you’ve bought something it’s very dangerous and the banks can always say no so don’t borrow more than you can. The banks can always say no to you so don’t borrow more than you can. Always leave a bit of money in the bank.”

If you’re worried about interest rates rising then Mr Kostanski says you should sit on your deposit for a while rather than rushing into a decision that you might regret later.

Four rules to curb spending

  1. Know what you’re spending – keep an account so you understand where your money is going so you can make cuts where they matter most
  2. Only buy what you need and try and master your emotional spends.  Buy what you need, not what you want.
  3. Review subscriptions, memberships and monthly spends you may not need any more.
  4.  Get an app to monitor spending

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