Tips on how to manage your money when the cost of living rises
The cost of living has gone up significantly and making ends meet can be a challenge. If you feel like you’re sinking under a wave of rising bills, a few easy money habits can help carry you back to dry land.
If, like many Australians, inflation is squeezing your pocket, here’s the good news. There are steps you can take to spring clean your living expenses, build a better budget and face the future with confidence.
What’s the cost of living in Australia?
It costs more to live in Australia now than it did in 2022 – and we have the data to prove it. According to the Australian Bureau of Statistics (ABS), over the past 12 months to July 2023, housing costs rose 7.3%, the prices of food and non-alcoholic beverages increased 5.6% and electricity bills went up a staggering 15.7%1.
The difference between cost of living and
standard of living
The cost of living and standard of living might sound similar, but they’re two different measures.
Cost of living
Standard of living
Where does the Consumer Price Index fit into this?
The Consumer Price Index (CPI) determines the cost of living by tracking price changes of certain basic goods and services each month. If prices rise but your income stays the same, it stands to reason that you’ll feel the financial pressure of a higher cost of living. And recently, the heaviest financial pressure is coming from rising mortgage and rental rates.
Applying for a home loan during inflation
Wondering whether the prospect of home ownership is still achievable? With uncertainty around interest rates leading to a lull in the property market it’s possible that house prices will drop. This could keep your dreams of becoming a first-time home buyer alive.
Some lenders may have tighter lending requirements when interest rates. So it could be a good idea to be prepared with your financial information as lenders may look at the details of your income, living expenses, liabilities and repayments when considering your home loan application.
How cost of living impacts your home loan application
One of the questions lenders could ask when reviewing your home loan application is whether you can comfortably afford the monthly repayments. Here’s a few things that could influence their decision:
Your debt-to-income (DTI) ratio
How much of your income is used to pay off your debt? That ratio is your DTI. It helps lenders understand if you can afford your mortgage repayments and pay them off without financial stress. Having more loans and credit cards could mean a higher DTI, as do HECS/HELP debt and buy now pay later debts. And that could make you appear risky to a lender. Your DTI could also limit your borrowing power which means you may have to put down a larger deposit.
Tip: Depending on your circumstances, consolidating your debts through a personal loan or refinancing may be an option to help lower your DTI. It's a good idea to speak with your current lender first to see if they can help.
Your genuine savings
Different lenders have different definitions for what constitutes 'genuine' savings, but as a rule genuine money you have consistently saved over time that helps demonstrate that you could be a good borrower. This doesn’t include non-genuine savings which is money that you haven’t saved by yourself or that hasn’t been in your possession for at least three months, for example an inheritance, tax refunds, equity in existing property or sale of an asset.
Tip: If you have recently come into some money and want to invest in property, speak to a lender like Pepper Money that accepts non-genuine savings for a full deposit, or that considers gift money as genuine savings (as long as it’s been untouched in a savings account for more than three months).
Your ability to meet the serviceability buffer
However, it’s a good idea to also do your own research or speak to a financial adviser to make sure you able to afford the loan before signing on the dotted line. Read more about home loan affordability.
Simple smart strategies to manage your money
Here are a few ideas that could help to lower your living expenses today.
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Food
- Buy home brands where possible.
- Shop at night when fresh produce is likely to go on sale.
- Shop online so you’re more likely to stick to your grocery list, and only buy what you need.
- Do a midweek shop when most supermarkets have weekly specials.
- Shop seasonally when certain items are likely to be reduced.
Housing
- Consider refinancing with a different lender for a better rate, especially if you’re on a variable-rate loan.
- Ask your current lender about loan term extension, a repayment break or interest-only payments.
Transportation
- Use public transport more often if it’s convenient and cheaper.
- Use a fuel price app to lock in the lowest-cost fuel in your area for up to seven days.
Utility bills
- Only run full loads in the washing machine and dishwasher.
- Close doors and windows when using the heating or cooling system.
- Use a thermostat to automatically turn the heating or cooling on and off.
- When replacing an appliance, choose electric over gas and one with higher energy-efficiency.
Personal finances
- Learn to better assess, tackle and track your finances.
- Switch memberships and subscriptions to an annual plan or pause/cancel them.
- Follow the 70-20-10 rule – 70% of monthly income goes to must-haves – think rent, bills, insurance, 20% into wants – takeaways, nights out and luxuries, and 10% to put into your savings or pay off debts.
Looking for more tips and tricks to help you manage your money? Or maybe you want to apply for a home loan, car loan or personal loan? Either way, we can help.
Sources: 1 Australian Bureau of Statistics (ABS): Monthly consumer price indicator
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Money management tips and tricks
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Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.
All applications are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply.
The results of the borrowing power calculator are based on information you have provided and is to be used as a guide only. The output of the calculator is subject to the assumptions provided in the calculator (see 'about this calculator') and are subject to change. It does not constitute a quote, pre-qualification, approval for credit or an offer for credit and you should not enter commitments based on it. The interest rates do not reflect true interest rates and the formula used for the purpose of calculating estimated borrowing power is based on the assumption that interest rates remain constant for the chosen loan term. Your borrowing power amount will be different if a full application is submitted and we complete responsible lending assessment. The results in the calculator do not take into account loan setup or establishment fees nor government, statutory or lenders fees, which may be applicable from time to time. Calculator by Widgetworks.
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Money management tips and tricks
From budgeting advice to tips to help your savings go that bit further, our resources have it all.
