5 smart money tactics in a time of rising interest rates and inflation

There is a lot of talk about rising interest rates, rising cost of living, and rising inflation.

The problem is, we’re also in a time of falling financial literacy which means we know we should be doing something, we’re just not sure what.

Too often this means people financially flee, freeze or stick their head in the sand and pretend it’s not happening. What if there was a better way?

The good news is, there are some smart things you can be doing now, both to protect your finances as well as to give them a nudge forward. Here’s five smart things you can start doing today.

1. Create an emergency fund

Prior to the pandemic, emergency funds or buffer accounts weren’t really talked about.

When COVID-19 hit, they were suddenly super sexy. That’s because having a pot of money in case of emergency means that when life happens, such as unexpected repairs or illness, you don’t have to rely on 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 living within your means is the secret sauce to having great finances.

Too many people are trying to keep up – not simply with their peers but with influencers on the internet who aren’t even buying the products they’re spruiking.

My advice? Unsubscribe, unfollow and unfriend, and start to think about what’s important to you, instead of being influenced to think or purchase in a particular way.

It also means swapping, pausing and cancelling expenses so that you’re plugging up that leaky bucket of unnecessary expenses.

Also consider whether the rent you’re currently paying allows you to live within your means. This might mean downsizing or looking to move to a more affordable suburb. Do a search on property websites to compare rates or use Rentola to find cheap rentals in Brisbane and other Australian cities.

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 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 biggest 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.

Need more ideas? Here are 50 ways to find $5K by the end of the 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 the pandemic arrived. Yet, in most areas, the reverse has been true.

Instead, it’s about investing for the long term, letting the power of compound interest do its magic, and not being reactive to short-term market rises and falls. This might even mean looking at existing investments such as your home loan – refinancing can allow you to save significantly in the long run.

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 –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, 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. It’s also ensuring you have diversification in each of these classes. For example, not buying your investment property in the same suburb as your home.

Make a smart money change today

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

If you’re not doing any of these things or maybe one or two, that’s okay. 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 okay, you know you will.

These five smart tactics will allow you to better manage the rising cost of living, increasing interest rates and inflation, and put you on the front foot when it come to managing your finances.