Interest Rates in the Headlines Again - How to Prepare

Over the past few weeks, I've really noticed a familiar theme in conversations with our clients, a big concern that interest rates in Australia are on the rise again.

For many people, that means they might feel like they have been through those tough times a few years ago and "are we headed back there again?"

The key thing I have been saying to clients is, "you have been through this before, so you know you can weather this again - if required".  

This time, though, these clients are actually going in to this better prepared psychologically, because they know what might be ahead.

I thought it would be an interesting analysis just to look at the data on  interest rates. Where have they been, where are they now and what could be ahead.

If we go back to 2022 and 2023, that is when the RBA cash rate rose significantly, this really rose from very low base. The cash rate with the RBA as low as 0.35% in May 2022.

That built up very sharply over 12 months to 4.10% in June 2023 and then another six months after that the cash rate hit 4.35%.

Since that time, the cash rate has dropped slightly to as low as 3.60%.  Which was recently increased to the current rate of 3.85%.

We are still 0.50%  from that peak level in 2024 when it was 4.35%.  

So what can you do to help prepare for further rate increases?

What I've really been saying to clients is that being in touch with your spending is a key.

If cash flow is tight, reviewing that spending is going to be critical. We say it all the time, "what gets measured gets managed".  Just the act of being aware and fully in touch with what you're spending just can help you feel like you are remaining in control.

If you do have a small cashflow buffer or you can build a small buffer, even if that's just in your offset or in your redraw of your mortgage, then that can assist in reality and also psychologically.

Even if that buffer is just a couple of thousand dollars, it can be the difference if things do get tough for a few months. Directing that extra cash to your offset or your mortgage is good first step if possible.

Another thing that can assist in times of uncertainty, is to control what you can control - avoid adding any new expenses, particularly fixed expenses.

If you can hold off on any new expenditure, it might just help you just remain in control, particularly if that expense is an ongoing monthly commitment.

Of course, in these situations, if you are feeling overwhelmed, it really can be very helpful just to have a chat.

Feel free to reach out to us any time to have that chat. We're only too happy to do that.

Go into this next phase feeling "we have done this before, we know what we need to do".

Tackle the problem head on, tackle it proactively, and get ready to weather whatever storm might be coming.