Basics bite families
New research reveals household essentials are causing us the most financial stress, writes Anthony Keane
AFFORDING necessities such as fuel, groceries and utilities is the biggest financial worry for Australians, a new report says.
ME’s Household Financial Comfort Report, released today, says households are more pessimistic about the future, their finances are fragile and 40 per cent of those whose financial situation worsened in the first half of 2017 blame the rising cost of necessities.
“Households have been hit with bill shock in the first half of 2017 and are anticipating more to come,” consulting economist and report co-author Jeff Oughton said, adding almost 70 per cent of households reported stagnating or falling income as consumer prices climbed.
“Some items have risen sharply, people don’t have savings and nearly 27 per cent have had income cuts. These things are combining.
“About one quarter of Australians have incomes of less than $40,000 per annum and another 30 per cent are between $40,000 and $75,000. There isn’t a lot left over to save or for a financial emergency.”
Bureau of Statistics data shows prices of electricity, gas, council rates, water rates, health, housing and rents have climbed at least twice as fast as inflation over the past decade.
The ME Report says selffunded retirees have the highest level of financial comfort, much higher than retirees relying on the age pension, while single parents receiving government assistance have the lowest comfort levels.
It says expectations of interest rate rises are causing concern, and Mr Oughton said people should “stress test themselves for increases in interest rates over the next few years”.
ME’s head of deposits and transactional banking, Nic Emery, said necessities could eat a large chunk of household income, but there were ways to save on essentials.
“Investigate what you spend your money on and identify if anything could be cut out,” he said.
“Question what you buy and where you shop — could you be getting a better deal? Set a budget on costs and stick to it.”
Mr Emery said people should identify low cost energy providers and consider switching, and adopt a similar strategy with their home loan.
“Negotiating your home loan rate or switching lenders could save some people, for example, up to $130 per month, $1560 a year or $46,000 over the life of the loan,” he said.
Setting some ground rules when grocery shopping was also a good idea, Mr Emery said.
“Always shop with a list — it prevents impulse buying, which can be a real budget breaker. Avoid stocking up on preprepared foods — you’ll save a bundle by opting for homemade.
“Where possible, hit the supermarkets towards the end of the day when fresh produce like bread, fruit and meat can be heavily discounted.” savings, Canstar spokeswoman Belinda Williamson said.
“If you have a $300,000 loan over 30 years and increase monthly repayments from $1520 to $1720, you stand to save almost $60,000 in interest and could repay it six years earlier,” Ms Williamson said, adding that if you can’t pay extra all year, seasonal adjustments will help. “It might mean once the current footy season wraps you put that ticket money towards your mortgage.”
Offset accounts or redraw facilities can lessen interest payments significantly.
“Consider having your pay and tax return deposited into your offset and with the addition of a redraw facility, withdrawing when you need it,” Ms Williamson said. “If you had a loan of $300,000 and had already repaid $100,000, you would pay interest on $200,000. But if you had $50,000 in a linked offset account, you would only pay interest on $150,000 of (the) balance.
“Based on a loan amount of $300,000 over 30 years, if you deposit $2,000 into an offset account you can shave around $9,650 in interest and repay it three months earlier. If you increase your offset deposit to $10,000, you can save almost $30,000 in total interest and cut your term by almost 18 months.”