It’s no secret that many Australians are feeling the weight of increasing prices. Your favourite chocolate bar, your go-to Friday night bevvy —even your HECS-HELP debt! It all seems a bit much right now, right?
But how does this happen? And what can you do to stay afloat in these times?
Well, we’ve got all the information you need on the why’s and how’s, PLUS some tips and tricks to maintain your financial freedom.
What does the cost of living mean?
No doubt you’ve heard this term a lot, especially recently. But it’s not as complicated or intimidating as it sounds.
Basically, the cost of living is all about how much money you need to live comfortably in different places. Different cities and towns have different prices for things like food, housing, transportation, and other stuff you need to live.
The cost of living will impact almost anything you need to pay for, like rent or mortgage for a place to live, electricity, water, groceries, transportation, and even healthcare.
It’s important to note that the cost of living can vary across different regions within Australia. Factors such as housing prices, availability of goods and services, and local economic conditions can influence the cost of living in specific areas.
It’s important to understand the cost of living for your area so you can plan your budget and make sure you have enough money for the things you need and want. It helps you make smart choices about where to live and how to spend your money wisely.
How is the cost of living measured?
In Australia, the cost of living is measured using various indices and surveys. Here are a couple of commonly used methods:
- Consumer Price Index (CPI): The Consumer Price Index is a measure of the average change in price of a basket of goods and services consumed by households over time. It reflects the general cost of living for the average Australian. The CPI is calculated by the Australian Bureau of Statistics (ABS) on a quarterly basis, and it takes into account a wide range of expenditure categories, including food, housing, transportation, healthcare, education, and recreation.
- Household Expenditure Survey (HES): The Household Expenditure Survey is conducted by the ABS periodically and provides detailed information about the spending patterns and living costs of Australian households. It collects data on various expenditure categories such as housing, utilities, food, transportation, education, and healthcare. The HES helps in understanding the distribution of expenses across different income groups and provides insights into the cost of living for different types of households.
These measures help policymakers, researchers, and individuals assess changes in living costs over time and make comparisons across different regions or demographic groups. They provide valuable information for budgeting, policy development, and understanding the impact of price changes on household finances.
More on the Consumer Price Index (CPI)
The CPI is a widely used measure to estimate inflation, which is the rate at which prices are rising. Inflation is an important economic indicator as it affects purchasing power, wage negotiations, interest rates, and various policy decisions. By tracking changes in the CPI over time, policymakers and economists can monitor inflationary pressures and make informed decisions.
What everyday living costs are affected by rising prices?
During a cost of living crisis, many everyday costs can go up, causing financial strain and impacting the overall well-being of individuals and families. This can create a challenging environment where the prices of essential goods and services rise rapidly, making it harder for people to afford the necessities of life —things like food, rent and utilities.
Here are three main areas where these cost increases can be felt strongly:
Utilities and energy
The cost of utilities and energy, such as electricity, gas, and water, can be affected during a cost of living crisis. Increases in energy prices or changes in tariffs can lead to higher monthly bills, making it more difficult for households to manage their expenses. Additionally, extreme weather events or supply disruptions can impact the availability and affordability of utilities, especially in areas prone to natural disasters or energy market fluctuations.
Housing is one of the most substantial costs affected by a cost of living crisis. It has already been confirmed that electricity costs will rise up to 25% in certain parts of Australia in July 2023. Rental prices or mortgage payments may also increase, making it more challenging to afford a suitable place to live. In areas with a high cost of living, such as cities or regions experiencing housing shortages, the crisis can lead to rising rents or inflated housing prices. This can put a strain on individuals and families, impacting their overall budget and financial well-being.
The cost of food and groceries also rise during a cost of living crisis. In fact, in our most recent study, we found that almost 1 in 2 (46%) of Australians struggle to pay for food before payday. Why does this happen? Inflation or supply chain disruptions can lead to higher prices for essential items such as fruits, vegetables, meat, and dairy products. This can make it more challenging to maintain a healthy diet and meet nutritional needs within a limited budget. Individuals and families may need to adjust their shopping habits, opt for lower-cost alternatives, or seek out assistance programs to ensure access to an adequate food supply.
Do interest rate hikes affect debt holders?
It depends on the type of debt.
If you have a mortgage or other credit product, the cost of living can affect interest rates for debt holders in Australia, but it’s not a direct relationship. The Reserve Bank of Australia (RBA) sets the official interest rate called the cash rate, considering factors like inflation, economic growth, employment, and consumer spending. In times of high cost of living or inflation, the RBA may raise the cash rate to control inflation by making borrowing more expensive. This leads to increased interest rates on mortgages, loans, and credit cards, making borrowing money more costly for consumers.
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HECS-HELP debt is a little bit different. Currently, HECS-HELP debt in Australia is indexed annually based on changes in the CPI, not the cash rate set by the RBA. This indexation makes sure that the value of the debt keeps up with inflation over time. The interest rate applied to HECS-HELP debt is generally lower than typical commercial interest rates and is designed to be more affordable for borrowers.
How has the rising cost of living affected consumer well-being?
The rising cost of living can significantly impact the well-being of consumers in various ways:
As the cost of essential goods and services increases, consumers may struggle to meet their basic needs within their budgets. This can lead to financial stress, where individuals and families find it challenging to cover expenses, pay bills, and save for the future.
Reduced disposable income
With a larger portion of their earnings going towards essential expenses like housing, utilities, and food, there is less money available for discretionary spending and saving. This can limit individuals’ ability to pursue hobbies, engage in leisure activities, or invest in their personal development, ultimately impacting their overall quality of life.
Affordability of housing
One of the most significant challenges resulting from the rising cost of living is housing affordability. Higher rent prices or mortgage payments can make it difficult for individuals and families to secure suitable housing, leading to overcrowding, increased commuting times, or even homelessness.
Impact on health and wellbeing
Everything listed above has been shown to negatively affect your wellbeing. In fact, 7 in 10 Australians we surveyed reported negative emotions as a result of financial stress. Financial constraints can compromise healthcare and result in limited access to healthy food and activities, which impact both physical and mental well-being.
How can you save money in times of rising costs?
Evaluate and prioritise your expenses
The first crucial step in taking control of your financial situation is to conduct an honest and thorough evaluation of your finances. It’s essential to approach this assessment with objectivity, setting aside any judgement or criticism.
Take a comprehensive look at your income sources, such as your salary, side hustles, or investments, and accurately determine the total amount you earn. Next, examine your expenses in detail, by looking at bills, receipts, bank statements, and other financial records to gain insight into your spending habits. This process will give you a clear understanding of your spending habits and patterns.
Create a realistic budget
Once you’ve got a pretty good idea of your current spending habits, it’s time to look towards your financial future. Create a new budget that aligns with your current financial situation.
You don’t have to make it complicated. Sure, you can spend hours creating a glorious spreadsheet if that’s your thing, but for those who are a little more lowkey, downloading a template or even jotting it down in your phone notes will work just as well.
Swag Tip: We’ve recently introduced a suite of money and budgeting features to help support your financial wellbeing. Tools like Pay Split automatically split your pay into a Swag Spend account, which you can then use to earn up to 20% cashback from a range of leading retailers. Stash accounts help you stash your cash in up to nine dedicated sub-accounts to help budget for holidays, investments, bills or emergencies —the choice is yours.
If your budget is looking a bit tight, you might want to cut costs where you can. Look for ways to save money in your daily routine. Consider meal planning, shopping in bulk, using coupons, or buying generic brands. Negotiate and reduce bills. Catch public transportation or carpool instead of driving alone. Small adjustments in your habits can lead to significant savings over time.
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If cutting costs isn’t going to work, then there is another option. Explore additional income sources to help offset rising costs. This might involve taking up a part-time job, freelancing, career cushioning, or monetising your skills or hobbies. Investigate online platforms and gig economy opportunities that can supplement your primary income and provide some financial relief.
Ask for help
There’s no shame in getting help.
If you’re facing money problems and want to regain control over your finances, consider reaching out to a financial counsellor. Seeking help at the earliest opportunity provides you with a wider range of options to address your financial situation.
For free and confidential assistance, you can call the National Debt Helpline at 1800 007 007 for financial counselling. The helpline operates from Monday to Friday, 9:30 am to 4:30 pm.
If you identify as Aboriginal and Torres Strait Islander, you could also call the Mob Strong Debt Helpline at 1800 808 488. This helpline also operates from Monday to Friday, 9:30 am to 4:30 pm, providing culturally appropriate assistance.
It’s also important to acknowledge that financial stress can have a significant impact on your mental health. If you’re concerned about your mental well-being, there are resources available to support you. You can contact Beyond Blue at 1300 22 46 36, which operates 24 hours a day. They also have a web chat service you can access 24/7.
Is the cost of living crisis happening in other countries?
Yes, the cost of living crisis is affecting many people across the world. Many of the factors influencing the cost of living crisis are global — from long lasting impacts of COVID-19 to global conflicts.
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The information in this article is current as at July 2023, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero) for its Swag brand. The information in this article is general information provided in good faith without taking into account your personal circumstances, and financial situation or needs, and should not be relied on as professional advice. Some Information is based on data supplied by third parties and whilst such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional legal, financial and taxation advice before making any important decisions or solely relying on the information in this article.
The information in this article is current as of 11 July 2023, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero) for its Swag brand. The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. Some information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.
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