How to sort your finances to combat rising living costs

How to sort your finances to combat rising living costs

Australian wallets and bank balances are being hit from all angles.

The pandemic alongside natural disasters across Australia continue to challenge us, with many people who were previously coping being pushed into financial difficulty and those who were already struggling finding it even harder to stay on top of their expenses.

News headlines tell a story of mounting credit card debt, people are turning to BNPL to pay for essentials like food or petrol. Inflation is growing, wages lagging and many feel the pinch or are falling into financial hardship.

But there are simple steps anyone can take to futureproof their bank balance.

Our team of Financial Hardship Advocates support hundreds of Australians every week who are experiencing hardship. Our advocates not only help rebuild financial confidence and stamina but also, specialise in building detailed household budgets for each client to follow.

Hence, they have many budgeting tips up their sleeves, which we wanted to share to help people get through this financially stressful time.

Here are our top 20 money tips to protect your budget.

1. Talk about money.

Discussing money and debt should not be taboo. Whilst it may feel embarrassing or difficult to talk about your finances, it is the first step to collectively solving some of the challenges you might be facing.

This doesn’t mean you have to chat through the ins and outs of your bank balances, debts and financial aspirations every day. Rather, it means building a habit around open, honest conversations around money will help you to pay attention to this aspect of your life and raise issues with the right people when you need help, advice or just someone who’ll listen.

If you’re losing sleep over money, discussing your situation is the first step to finding the support you need. There is no reason to struggle in silence as help is out there.

Talk to someone, be it your partner, family, friends or a lender or service provider.

2. Budget is your financial shield.

Preparing a household budget can sound challenging but it’s the best way to know in detail how much money you have coming in and where your money is going.

The more detail, the better. Adding accurate data or close estimates of how much you spend on things like haircuts or car maintenance will allow you to have a complete overview of your household spend – even for expenses you might not think too closely about but still pay for.

Many online budgeting tools are available, like our free interactive budget planner, that do most of the heavy lifting for you.

A word of caution though: a budget is merely a tool that helps you understand at a point in time what you could do with your finances. A lot of people prepare budgets but don’t use them afterwards. That’s fine, the objective of working out a budget is to help set some rules or boundaries on how much you need to allocate for expenses like the weekly grocery shop, how much you need for regular bills and importantly, how much to save or spend on enjoying your life.

3. Your income should cover your expenses.

Many clients come to Way Forward after landing in financial trouble for a seemingly simple reason: they’ve spent more money than they earn, sometimes without realising.

This is where a household budget is helpful, as it gives you a clear idea of how much money you have left after you’ve paid for the essentials.

If your personal circumstances have recently changed and your income decreased, ask for assistance before things escalate. Whilst you may be able to manage income changes in the short-term by using savings or more credit, the situation can quickly deteriorate.

You can also go through your budget to see where you could cut back – monthly subscriptions, take away meals and entertainment may be good places to start.

4. Revisit your budget.

Life situations change constantly, which will impact your household budget. It’s a good idea to revisit and adjust your household budget regularly, be it monthly, twice a year or once a year. The cadence depends on how much your financial situation is likely to change over time or if there have been big rises to regular expenses like petrol.

You can download our Budget Planning Excel Spreadsheet if you want to save a copy of your household budget and keep updating it when needed.

5. Consider family finances everyone’s business.

If you have dependants or share finances with a partner, ensure everyone is clear on roles and responsibilities. Open discussion about money helps to avoid any surprises along the way. For couples, we recently outlined tips how to handle money with a partner in our blog.

As a parent, consider how much detail to share with your children about family finances. Discussions about money are part of financial education and parenting so don’t be afraid to bring up the topic when needed.

6. Set up a bills account.

We all have expenses that can take us by surprise, for example car registration or electricity and gas. To combat this, figure out your big bills and save towards them ahead of time using automated transfers to a separate bills account.

You can then access funds from your bills account when big expenses land. This will help you avoid using credit – and protect you from financial hardship in the long-term.

7. Don’t touch your savings.

If you find yourself regularly dipping into your savings, consider opening a savings account with another bank so you’re less likely to touch the funds.

Setting up a savings account with automated transfers on payday is another great way to save money, hassle free.

8. Pay attention to your credit scores and reports.

Credit scores and reports are important because they can determine the availability and terms of credit you can access.

Everyone has the right to one free credit report per year from each credit reporting body (there are three in Australia). Credit reports include comprehensive information that credit providers assess when you apply for a loan, or other forms of credit, so it is important to check each report for any errors.

Read more on credit scores and credit reports on our website.

9. Pay attention to rising prices.

Lately we are seeing increasing prices of everyday items like food and petrol. As some prices are going up significantly, pay close attention to how much this is impacting how you allocate your regular spending boundaries.

For example, if your groceries spend is increasing and your household income is staying the same, the money needs to come from somewhere. Make conscious decisions on where adjustments need to be made to meet these changes.

10.  Pay off credit cards.

Credit cards can put a strain on personal finances quickly, as most credit cards attract high interest rates of up to 20%.

For context, most clients who land at Way Forward have credit cards that have crept up and eventually become unmanageable, as they can’t reduce the debt with such high interest rates.

Approximately 60% of the client debt we manage is credit card debt and clients come to Way Forward with around 5 unsecured debts (3/5 being credit cards). Without intervention, growing credit card debt increases people’s likelihood of falling into financial hardship. This is why it’s best to get on top of your credit card debt sooner rather than later.

See more on our debt info page on credit cards.

11. Avoid using credit to pay credit.

Taking on more credit to pay for credit can quickly land you in financial hardship. As most of the short-term credit options have surprisingly big interest rates, you can easily get in trouble maxing your credit limits or picking up more credit to pay the bills.

12. Set financial goals.

It will be easier to stick to a budget or a savings plan if you have long-term goals in mind. Setting clear goals keeps most people on track and makes the whole process feel more enjoyable.

It’s about flipping to a positive mindset instead of dwelling on the negatives.

13. Embrace money savvy fun.

Being smart about your finances doesn’t mean you need to stop enjoying life. For example, holidays don’t need to break the bank. Australia is blessed with countless options to enjoy our time at little to no cost – from museums to galleries, festivals, parks, beaches and so on.

Set a realistic budget for your next holiday and try to stick to it. It also means you might afford more trips in a year if you’re being smart about your holiday budget.

Same goes for shopping, clothes, entertainment, eating out and so forth. Once you start exploring affordable options, you’ll realise there are plenty of ways to enjoy life to the full, without overspending or using credit.

14.  Patience pays off, always.

Often people might buy a big item like a new TV, laptop or a holiday using credit. The better, safer way is to plan for big purchases and once you can afford it, buy it.

Buying a costly item like a new laptop on credit might seem a great idea in the moment but might leave you financially vulnerable or be more costly than you initially thought due to the high interest rates. You could also still be paying that item off long after it’s been purchased and then replaced.

Before taking on debt, ask yourself how long it will take you to pay off the purchase and how much will you eventually pay with the interest rates or other payment terms. Is it worth it?

15. Explore discounts with lenders and service providers.

Contacting your lenders and service providers to negotiate a better deal is a guaranteed trick to save money. This includes your gas, electricity, Internet, mobile phone bill as well any insurance policy.

If your provider won’t offer a better deal, do your research to establish if a competitor might.

16.  Be curious, search for answers

Money, credit and debt can be complicated and nobody expects you to have all the answers.

But do your research before making financial decisions like a mortgage or investment. Sign up for a course or read widely about relevant topics but ensure you check the source.

There are many entities with vested interests when it comes to money. So make sure you know where the advice is coming from and whether to trust it. We recommend Australian government sources (like MoneySmart) and ABC Money for impartial advice, news and education around finances.

17.  Budget for the long-term.

Many people have a short-term view when it comes to their finances and live paycheck to paycheck. This can leave them vulnerable to financial hardship when unexpected items pop up.

For example, if you get paid monthly, you might budget for the month ahead but forget to consider the big bills that come through less frequently. This is when you might be hit with an ‘unexpected expense’ as you didn’t save up for the expense before it was due.

This is where the Way Forward budget planner comes handy as it encourages you to take a longer-term view to money and understand the monthly/bi-weekly cost to an infrequent expense.

18. Speak to the provider when you can’t pay a bill.

Most lenders and service providers have hardship teams and options to offer their customers unable to pay. Speak to your provider immediately when you’re struggling – tackling the issue early on will also limit impacts to your credit rating.

19. Watch out for scams.

Investment scams have been on the rise in recent years and usually involve promises of big payouts, quick money or guaranteed returns. ScamWatch recommends to ‘always be suspicious of any investment opportunities that promise a high return with little or no risk – if it seems too good to be true, it probably is – and is highly likely to be a scam’.

Another scam to watch out for money recovery scams targetting people who have already lost funds to a scam and promise help to recover losses after paying a fee in advance.

Up-to-date information is available at ScamWatch, a service provided by the Australian Government.

20.  Ask for help early.

One of the biggest one regrets our clients have is not asking for help earlier. Many tell us they lived through months of sleepless nights and added credit on top of credit to stay afloat before finally asking for help.

If you’re struggling with finances, be it paying for bills or your debt repayments, the best thing to do is to ask for support sooner rather than later.

Talk to your friends and family or contact service providers to explain your situation and see what help they can offer. You can also speak to a Financial Counsellor for advice or seek help from an organisation like Way Forward to get out of debt faster.

There is no reason to struggle alone as help is out there.

Way Forward helps clients in three simple steps:

Step 1: We evaluate your circumstance and financial situation.

Step 2: We take over negotiations with creditors and act your behalf.

Step 3: We put together a manageable repayment plan and budget. You make one reoccurring payment to us that we then distribute to all creditors, 100% of which goes towards reducing the debt.

If you’re stuck, get help. Pick up the phone and ask for support. Find out if we can help you.

Use our free budget planner or debt repayment calculator.

Struggling to pay for the essentials such as food and rent and want to know more about your options? Our emergency funding page lists some of the available free emergency services and funding if you live in Australia and find yourself in financial difficulty.