Modern Australian

Inflation Advice: 5 Tips to Protect Your Finances from the Impact of Inflation

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With inflation rising and dragging the cost of living up with it, many Australians are beginning to feel uneasy about their savings and the plans they had in mind for their financial future. If you’re concerned about the impact inflation may have on your wealth, you’re in the right place. 

We asked our favourite financial advisors and SMSF accountants in Melbourne for their most valuable inflation advice for Aussies. From their recommendations, we’ve developed the following five tips: 

1. Adjust your budget

For some people, this “adjustment” may actually mean starting a budget. If this is you, don’t stress. So long as you get cracking now, you can enjoy the benefits of budgeting while protecting your finances in the process. 

With fuel and food prices inching up month by month, a budget is your most valuable tool for understanding your financial position. This knowledge truly is power as it will allow you to understand what you can and can’t afford and whether you need to look into bolder measures to protect your wealth. 

2. Prioritise paying off variable debt

If you have any debts with a variable interest rate, it’s worth paying these off as soon as possible. The Reserve Bank aims to bring inflation back under control by raising interest rates, and as interest rates climb, so will your outstanding balance on any debts with variable rates. 

3. Refinance if you can

If you currently have a fixed-rate mortgage set in place while rates were low, then you’re in the perfect position to ride out this wave of inflation. If you have a variable-rate mortgage or any other variable-rate debts that you can’t pay off quickly, now is the time to see if you can refinance. 

Credit card debt is one of the worst offenders during times of inflation as it’s generally a floating-rate debt, meaning your monthly payments will continue to rise along with interest rate hikes. So, look into debt consolidation and other options that may help you escape this trap. 

4. Save first, invest second

While there are plenty of lucrative investment opportunities to be found during times of inflation, you don’t want to go out on a financial limb with no safety net ready to catch you if something goes wrong. Instead, work on building up your emergency fund before you go running off in search of investment opportunities that may outstrip inflation. 

One small benefit of the rising interest rates is the fact that high-interest savings accounts will enjoy a bit of a boost. While it’s not enough to beat inflation, this does mean that your emergency fund will be accruing a little bit of spare cash for you. So, ensure you have enough set aside for several rainy months, and then set your sights on investment. 

5. Be tactical with your investment portfolio

According to finance experts, the investments that tend to perform well during times of inflation are those related to essential consumer goods, utilities, energy, healthcare, and banking. On the other end of the scale, luxury goods, automotive businesses, and housing companies become riskier investments during times of inflation as people tend to reduce their spending in these areas first. 

While you don’t want to make any rash decisions with your portfolio, it pays to keep these factors in mind when considering where to invest your money in the current economic climate.

Take action on the tips above, and you should find yourself in a far more secure financial position, ready to ride out this wave of inflation and continue growing your wealth. We wish you all the best!

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