Five tips to protect your household budget against soaring inflation

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With global supply chain issues and the war in Ukraine driving up the cost of living, now is the time to make sure your household budget is protected.

Petrol prices have already soared above $2 a liter and customers of large supermarket chains such as Woolworths have been paying 2-3% more for groceries since the start of the year.

Canstar financial expert Steve Mickenbecker says the cost of personal finance products, such as mortgages and insurance policies, are also rising, meaning revising our budgets has become an imperative.

“There is almost no doubt: interest rates will go up, [and] premiums for general insurance policies will increase following floods and severe storms,” Mickenbecker said.

“So it’s important that you really start planning now.”

Here are five tips to protect your money from inflation.

1. Set up your family budget

Before you can protect your finances, you must first determine what comes in and goes out of your bank account.

Chronos Private senior adviser Chris Giaouris said it’s hard to protect your finances if you don’t understand them.

“If you know you have X amount in tuition, you have X amount in mortgage payments, you have X amount in living expenses – either way, it’s much easier to plan [with a budget]said Mr. Giaouris.

Mickenbecker said having a plan will make financial progress easier, helping you weather financial shocks whenever they arise.

2. Shop

As the country emerges from its COVID-19 hiding place, Australia’s era of record high interest rates is coming to an end.

Mortgage payments can be one of your biggest regular expenses, so keep an eye out for the best rates.

For example, Mickenbecker said you could save up to $314 per month on a $500,000 home loan by going from 2.99% to 1.77%.

“Try to save that in your household budget on the grocery cart – it’s not possible,” he said.

And if you manage to obtain a lower mortgage rate, do not increase your repayments; instead, set aside savings for a rainy day, Mickenbecker said.

With recent flooding in New South Wales and Queensland expected to drive up already rising insurance premiums, he said you should also use your annual car or home insurance renewal notice as a reminder to request quotes to other suppliers.

“Make sure you’re comfortable being covered for the things you need, but you can get just as good coverage for a lot less on many occasions,” he said.

“Never let an insurance policy automatically renew itself without doing research.”

3. Separate your bank accounts

Some people may have enough self-discipline to manage their income and expenses with one bank account.

But Mr Giaouris said setting up separate bank accounts for different purposes would add some structure to your saving and spending habits.

He said people often spend more money than they intended, and then they don’t have the savings they thought they had when they have to pay for things like schooling.

Having separate accounts for different spending and saving goals could help you better track your money and prevent any “leakage”.

4. Pay off your credit card

Mickenbecker said credit card debt is one of the most expensive debts you can have, so it’s best to eliminate it as soon as possible.

Canstar data shows that the lowest rate available in Australia on a non-reward card is 7.49%, while the average is 13.61%.

“It’s very expensive debt, so reduce your credit debt so you don’t have that big repayment over your head when the time comes for interest rates to rise,” Mickenbecker said.

But be sure to leave some savings.

5. Create a savings reserve

Saving money now is the best way to help you through a future financial crisis, Mickenbecker said.

Financial planners generally recommend saving at least three months of living expenses.

But Mr Giarouis said some of his clients save more for peace of mind.

“We work with many clients who like to have large cash reserves because it just helps them sleep better at night.”

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