Twin forces set to wreck your budget

Bruce Brammall, The West Australian, 14 March, 2022

14 March 22





























It’s so thick in the air now, you can almost smell it. You can sense the pain and suffering that will follow. And the awkward anticipation of helplessness.

Sounds like I’m talking about the Omicron wave that’s now building like a tsunami through the West? Or maybe even the situation in The Ukraine? I’m not.

I’m talking about the pressures mounting on your personal finances. It’s a silent battle, building slowly, on several fronts.

By Christmas, your household budget is likely to look a lot different to what it looked like last Christmas, or even now. And probably worse.

Twin-headed beast

There are two major factors that are going to blow holes in personal financial situations – inflation and interest rates. There’s no respite from the first and the second will hit most directly and others indirectly.

Inflation has become a conversation starter. It’s been a long, long, time since chats around the barbecue included: “Wow, the price of widgets has gone up!” But it’s happening.

Official headline inflation for the December quarter was 3.5 per cent. But anyone who does the shopping (or in my case, a little embarrassingly, the anecdotes of those that do) is that it has taken off like a rocket since.

None more so than petrol prices, which have smashed through $2 a litre. (I remember filling up during the 2020 national lockdown for under 90 cents.)

Petrol is one item. And the pressure there is more coming about because of Russia’s invasion of Ukraine and the flow-on effects for global oil supply.

But fuel prices feed into the prices of almost everything.

Adding it up

If your family’s fuel bill was $100 a week six months ago, it’s now at $130 to $140. Either you drive less, or that extra $40 has to be found from somewhere else in the family budget.

Shortages of stock and supply-line issues are driving up the prices of, it seems, everything. There’s no obvious end in sight. And, if the weekly family grocery bill was $400 a year ago, it’s now $414 … something has got to give in the household budget, if you haven’t had a matching pay rise.

But wait for the steak knives.

Higher inflation tends to see workers demanding extra pay, leading to wage inflation. And that is also ticking up, according to government figures.

And when you get rising consumer inflation and then wage inflation, the Reserve Bank pulls out its interest rate stick.

They’re coming

So we know that interest rate rises are coming. It’s just a matter of when and how many. The average mortgage now in Australia is about $600,000. A 1 per cent increase in interest rates rips about another $324 a month to service.

It doesn’t take much thinking to realise that by year’s end, those who are scraping by, or saving only a little, are going to come under some serious pressure.

Building the moat

Ask for a pay rise, sure. If there’s a shortage in your industry – and there seems to be in most – then asking for more money to come in the door might be appropriate. But actually getting a payrise is somewhat out of your control.

What is far more in your control is what you allow to go back out the door.

You’ve got two options. As you see things go up in price here, you can then make cuts there. Every time spending increases in one area, another area gets the snip.

Or you can get ahead of the game and aim to have a little more control than just being reactionary.

Stocktake sale

The mortgage is a good place to start. Sensible folk would have maintained higher repayments throughout, if they could.

If you didn’t, lift your repayments to a higher level. The money will build up in your redraw account and give you a bit of a buffer.

Do a home loan check. If you haven’t switched banks recently, or haven’t hit your lender up for better rates, competition is pretty fierce and getting a better deal is a real possibility.

Sit down and go through the budget. Has any really lazy spending, or just pure wastage, snuck onto the budget, or quietly pushing up the credit card bill?

If you’re feeling price pain now, you ain’t seen nuthin’ yet. Take control and get ahead of the battlefront that’s coming.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial adviser and mortgage broker. E:


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