What you should do with rising interest rates

Today the Reserve Bank of Australia (RBA) increased interest rates by 25 basis points. The RBA also warned that it would do whatever it takes to bring down inflation and warned homeowners to expect more pain after their ninth interest rate hike since May. This means that those on variable rates are feeling the extra pinch nearly every month, and those fortunate enough to fix their rates will start to feel the pain soon when their fixed rate expires.

With this in mind, I wanted to run through a few things you could be doing to minimize the financial pain that can come with rising interest rates.

Review your loans

Step number one. Banks don’t give you loyalty bonuses for sticking around. It’s usually the opposite. They’re always trying to attract new business with better interest rates and cash-back offers but don’t offer these to existing clients. Therefore if you stick with your bank without reviewing, you will pay the loyalty tax.

The first thing you can do is contact your bank and see what they will offer you. They may be able to reduce your interest rate a little bit. However, when you only talk to one bank, you are ruling yourself out of several other potentially lower interest rates or cash-back offers. This is why I think it’s always prudent to have a good broker on your side.

A good broker will be able to assess all the different lenders in the marketplace and get back to you with what they think is the best offer for you. They’ll be able to help you with the paperwork, and usually, they are paid a commission via the lender, so there are no direct out-of-pocket costs to you. In times like these, where interest rates are constantly moving, having an excellent strategic broker on your side can save you thousands.

Look at your expenses

Along with these extra loan repayments, we have high inflation. Things are costing more. It’s always prudent to budget and keep your budget updated, but even more during these times. Areas such as insurance are an excellent place to start. Again, there are brokers for general insurance such as home and contents and car. It can be helpful to find a good broker who has access to many different options and can help you find the best one for very little work from your end.

Personal insurance has also seen massive price increases over the past couple of years. Life, Total and Permanent Disablement, Trauma and Income Protection are all insurances you should review. You may no longer need the same amount of coverage if your situation has changed; therefore, you could be paying extra for insurance coverage you do not need. A good financial advisor should be able to help you with this as it’s crucial to only cancel these insurances after fully understanding the consequences.

It is also a good idea to do a full review of your expenses during times like these. A lot of little savings here and there can add up. Are multiple members of your household paying for Spotify each instead of having a family account? Can you piggyback off another family member or friend’s streaming service? These are just little examples of common expense areas that people become lazy with, and these smaller or micro expenses that are automatically directly debited from our accounts can add up.

Update your financial plan

As times change and your circumstances change, so too should your financial plan. One of the main parts you should review is where you allocate your surplus cash flow. For example, if you set up your strategy over a year ago when interest rates were lower, you may have assigned your surplus cash flow to things such as investments or superannuation. Not saying you shouldn’t keep doing these things, but you should be looking at whether or not some more of that surplus could go towards paying down some of your loans or building your offset account to provide a little relief.

If you have any questions, feel free to message me at zac@pekada.com.au.