If you’re struggling financially now, prepare to keep on struggling for at least the next six months. That’s the stark warning for Australians from financial expert David Koch after the pre-Christmas "gift" of a interest rate hold.
“What you see now, is what you are going to get for the first half of next year,” he told Yahoo Finance moments after the Reserve Bank (RBA) held the cash rate at 4.35 per cent.
The cash rate is still at the highest level it’s been since 2011. RBA governor Michele Bullock acknowledged in her announcement that “many households are experiencing a painful squeeze on their finances”, and Koch, nor a single economist from the Big Four banks, predict it will drop for another six or seven months.
“A lot of people are thinking, ‘If this is a peak in interest rates, they are going to come down quickly and I am going to get more money in my pocket’. But I don't think that's going to happen,” the Compare the Market economic director said.
“You're going to have to tough it out and it's going to be as tough in the first half of next year as it is now.”
A staggering 79 per cent of Australians - which is millions of us - feel under “extreme” financial pressure, according to Finder's Cost Of Living Pressure Gauge.
So, when is it going to get easier?
Well, Bullock said there were currently Australians benefiting from “rising house prices, substantial savings buffers and higher interest income”. Others are battling rising costs of energy bills, groceries, the pressure of Christmas, and record rents.
Mortgage holders on average have already paid $24,000 extra interest as a result of 13 rate hikes since May last year, and almost half a million more will roll off low fixed rates to higher variable rates next year.
But there is a big indicator for 2024 before the next RBA meeting on February 7.
“Mark January 31 in your diary because that will determine interest rates for the entire year,” Koch said.
That’s the date the Consumer Price Index (CPI) data for the December quarter is released, which Koch said would give us a “good idea” whether the RBA would continue its aggressive attack on inflation.
“There’s not been a more important inflationary figure in two years,” he said. “If it comes in significantly below expectations, then that changes everyone's view on when a cut could come. I'm of the view that interest rates are not going to get any worse. But they're not going to get any better for quite a while.”
Economists from the Commonwealth Bank, Westpac and ANZ don’t expect another cash rate jump, but NAB forecasters are predicting February will deliver another blow to borrowers.
If you’re under pressure, Koch recommends drilling down on every dollar of your budget.
“Ringing the bank might take you half an hour and save you $10,000,” he said.
How can I save money in cost of living crunch?
Koch said first, get all your major expenses together. Think bills - phone, electricity, gas, internet, insurance for your car, health or home, any loans, and even small things like streaming services.
Now, you’re going to spend 20 minutes a day looking into how you can reduce that.
Can you call your provider and get a cheaper energy plan? Can you bundle your phone and internet to slash that cost? Are you paying for added extras for insurance you no longer need?
“If people spend that time for the next two weeks, targeting a particular expense and seeing whether they’ve got the best deal, I reckon they would’ve saved themselves $10,000,” Koch said.