Feeling the pinch? Here are some ways to find savings – and even fight inflation
Are you tired of feeling like everything is getting more expensive, everywhere, all at once? Well, you're not alone. Australians have been grappling with a cost-of-living crisis since the pandemic, and it's only getting worse. Last year, it seemed like inflation might finally be under control, but a few months ago, it started to pick up again, and then the war in the Middle East sent fuel prices soaring. The Reserve Bank has now lifted interest rates three times this year, completely reversing last year's cuts. Many Australians are feeling the pinch.
But don't despair! There are some simple strategies for managing your household budget and finding savings. And no, it's not just about quitting takeaway coffee or cancelling your subscriptions (though that might help). Some of the biggest savings can be found in other areas.
Needs versus wants
Before we get into cutting back on individual costs, it's important to understand the difference between discretionary and non-discretionary spending. While there are no universal definitions, the Australian Bureau of Statistics has attempted to separate these categories. Discretionary spending is "optional" and includes things like recreation, alcohol, and holidays. Non-discretionary spending, on the other hand, relates to items that are considered "essential", such as food, housing, and healthcare.
The majority of household spending is non-discretionary, and it's worth noting that prices are rising at a faster rate for essentials. Some of the largest savings you can make are on the things you can't go without. So, let's start with the basics.
Avoiding the loyalty tax
Households often face a "loyalty tax" when it comes to essential bills like housing, utilities, and insurance. This is the extra money you pay by staying with the same service provider for a long time, missing out on cheaper rates or better offers. In Australia, there is strong evidence to suggest that low-income households, who would benefit most from switching essential service providers, are also the ones least likely to do it.
At any income level, it's a good financial habit to review your non-discretionary spending regularly. There are various government resources available to help people find and switch to better offers. And in cases where the switching costs are too high, households can look at strategies for saving on other essentials, such as food and groceries.
Secondhand shopping and the fight against inflation
Cutting your takeaway coffee or ending your subscriptions can certainly save you money, but there are potentially even bigger savings to be found in secondhand marketplaces. If you're managing a strained household budget, secondhand goods offer a great way to cut your spending by getting what you want at heavily discounted prices. More than that, secondhand marketplaces cut both ways – you can be a buyer, but you can also be a seller.
Most households are full of old things that aren't used or wanted, and selling them can help generate additional income. The sustainability benefits stemming from the circular economy of recycling and reusing old items are obvious, but the practice might also be anti-inflationary in some small way. It shifts demand away from stores, reducing some of the competitive pressures that underpin rising prices, while at the same time helping households grow their savings.
Just remember to be wary of scams when dealing with online commerce.
A willpower workaround
The "loyalty tax" isn't really about being loyal; it's about the inertia of not getting around to switching. Service providers don't keep your business because you keep choosing them – they keep it because you stop choosing. Automatic bill payments work the same way – once people consent to a direct debit, they rarely cancel the payment.
The good news is that you can flip this around on the savings side of the equation to work in your favour. Once you've audited your essentials and substituted secondhand marketplaces for the stores, you can think about the future. Why rely on willpower alone to build your savings? Instead, automate your savings on payday in the same way that you already automate paying your bills.
Banks generally allow you to have multiple accounts at no extra charge. So, consider setting up a small automatic transfer from your main account to a high-interest "rainy day" fund. A precautionary savings buffer is among the best tools households have to ensure financial resilience through difficult times.
