Cutting costs has been a necessary mission for millions of homes across Australia, but some cutbacks are potentially dangerous.
The Australian’s National Editor Dennis Shanahan says Treasurer Jim Chalmers is in a very difficult position as there is “clearly” more “bad news” coming for the cost-of-living.
“Jim Chalmers really needs to take a leaf out of Peter Costello’s first budget in the Howard government,” Mr Shanahan told Sky News host Peta Credlin.
“That got a bump but it was not a sugar hit.
“While Jim Chalmers is saying things … clearly there is more bad news coming.
“He is saying there will be cost-of-living but he keeps saying it won’t be that, that pushes up inflation.”
As high inflation and interest rates linger for longer, Australians are giving up regular expenses to keep their household budgets under control – starting with discretionary items such as restaurant meals, treats and coffees.
However, some are cutting back on essentials such as insurance and health care, which potentially puts them at greater financial risk.
Money coach Karen Eley says people have become more careful and conscious about making money sacrifices, particularly around eating out and holidays, and also on the home front where they avoid upsizing and young adults move in with siblings and parents to save money.
“The biggest impact I’ve seen with clients is the rising cost of mortgage repayments and rent,” Eley says. “They’re forcing people to cut back.”
Money coach Karen Eley says avoid underinsurance. Picture: Heidi Wolff
SAVINGS TIPS
Eley says money sacrifices to consider include:
• Switching from a protein meal to a vegetarian option once a week, potentially saving a family up to $40.
• Changing to cheaper cuts of meat.
• Having home-cooked meals rather than takeaway.
• Streamlining streaming services.
• Swapping movies, concerts and other expensive outings for activities that are free or cheaper.
“Free activities are always an option if you do your research,” Eley says.
People also can consider public transport rather than driving everywhere, she says.
“Two-car households could move to one car and use rideshare or other cost-effective options when needed.
“It only takes a few months to create new habits, so some financial sacrifices can be for the better, long lasting and provide the opportunity to either save money which can be used for wealth creation, or put towards longer-term goals.”
INSURANCE TRAP
Household expenses that should not be sacrificed include insurance and maintaining an emergency fund, Eley says.
“Being underinsured can potentially put people at a greater financial risk,” she says.
Sort My Money founder David Rankin says people should shop around for a better home and car insurance deal but not cut their cover completely.
Medical expenses are another cost to maintain, because if poor health is left unchecked things can snowball, Rankin says. It’s a similar story for heating costs: researching ways to keep warmer is a good idea, but turning off heating altogether can impact people’s health and also their home through damp, he says.
Money sacrifices usually start with discretionary expenses “but the worrying trend is it moves into important things like insurance as well,” Rankin says.
He has noticed people cutting back on coffees, treats, eating out, buying no-brand grocery items and carpooling more, but also not repaying their credit card debts in full each month.
This threatens to create an extra ongoing expense for consumers, as does switching bill payments from annual to monthly – which often costs more.
Sort My Money founder David Rankin says a habit is not a luxury. Picture: Supplied
“Paradoxically they are creating an ongoing overhead for themselves,” Rankin says. “Some so-called sacrifices will bite you in the bum pretty quickly.
“It’s because they need to keep a roof over their head. Whether you have a mortgage or whether you rent, your costs have increased and the roof is your priority.”
SMALL REWARDS
Rankin says it is important to continue rewarding yourself with little luxuries, but keep on the lookout for spending habits that may have started as a luxury but now have become automatic and are no longer a reward.
“When something becomes a habit, it is not a luxury by definition,” Rankin says. “You can still go out for a coffee, but once it’s a daily habit that luxury becomes an overhead.”
The current high-inflation environment will eventually pass. “You have got to ride out the storm and batten down the hatches – most people are in the same boat,” Rankin says.
“We know that good times are on the horizon and it just depends when the horizon is. This is not forever – it just feels like it at the moment.
“The sacrifices we make now are worth it and will get us through.”
Source: Money sacrifices to protect your household
