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5 smart money moves during rising interest rates and inflation

·4-min read
Compilation image of pile of Australian dollar notes and people walking
When COVID-19 hit, having a stash of money in an 'emergency fund' suddenly became a lifesaver for many. (Source: Getty)

There is so much talk at the moment about financial doom and gloom. Rising interest rates, the surging cost of living and high inflation combined with low financial literacy mean that while we know we should be doing something to protect our money, we’re not sure what.

Too often this means that people financially flee, freeze or ‘stick their head in the sand’ and pretend it’s not happening.

But what if there was a better way?

The good news is there are five smart things you can do right now to both protect your finances and give them a nudge forward.

1. Create an emergency fund

Prior to COVID-19, emergency funds or buffer accounts weren’t really talked about. Then, when COVID hit, they were suddenly super sexy.

That’s because having a pot of money in case of an emergency means that when things happen (such as unexpected repairs or illness) you don’t have to dip into the credit card.

And no, jetting off to Europe for summer isn’t an emergency.

2. Live within your means

This one seems so obvious but it’s the secret sauce to having great finances.

Too many people are trying to keep up both with their peers and with influencers on the internet - who aren’t even buying the products they’re spruiking.

My advice?

Unsubscribe, unfollow, unfriend and start to think about what’s important to you. It also means swapping, pausing and cancelling expenses and subscriptions so that you’re plugging up that leaky bucket of unnecessary expenses.

3. Find additional income

Too often we head straight to tightening the belt on our expenses (which is important) but we don’t think about finding more income. Whether that’s a second job, a side hustle, becoming a delivery driver, doing surveys online, renting out your stuff or even just completing your tax return – finding more income can be a great way to supplement the rising cost of living and means you’re not solely reliant on your wage.

If you have a mortgage, one of the easiest ways to find more income is to ask your bank for a rate reduction. Inside my course, the My Financial Adulting Plan, the average rate reduction received is 0.50 per cent and the biggest saving was $15,000. Every single year.

4. Invest for the long term

Over the last few months, we’ve seen so much uncertainty and conflicting advice when it comes to whether the share market will continue to fall, whether property will fall, whether it’s safe to take on debt, and more.

Here’s the thing, no-one has a crystal ball. Yes, experts can make an educated guess, but let’s remember that most experts predicted a property market crash of 20-40 per cent when COVID arrived but the reverse has been true.

Instead, it’s about investing for the long term, letting the power of compound interest work its magic and not being reactive about short term market rises and falls.

5. Diversify your investments

Many Australians have a wage, a home, some superannuation and that’s it.

This means that suddenly the balance of your superannuation is critical because that’s the only income source you’ll have when you stop working. That is, unless you’re prepared to sell your home and downsize, but not everyone wants to do that.

It also means if your job is at risk because you may not have liquid savings or other income sources to fall back on.

That’s why I’m a fan of multiple income streams and diversification. Diversification might be across property, shares and business so that if one falls the other is stable or rising. You also want to ensure you have diversification in each of these classes. For example, avoid buying your investment property in the same suburb as your home.

If you’re already doing all five of these things, great job. Now, think about what your next financial step is.

And if you’re not doing any of these things or maybe one or two, that’s ok. Pick one that you’re going to start with and then add another each week or month so that within 12 months you’re not simply hoping you’ll be ok, you know you will be.

Melissa Browne is an ex-financial advisor & now financial educator. Join her Financial Self Care Challenge which starts on September 5 at www.melissabrowne.com.au/challenge

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