Cost of living – spending, budgets and managing debt

The cost-of-living crisis is affecting everyone, some more than others; while we can’t beat this crisis, we can use financial strategies to manage the impacts in our own lives.

When the cost of ordinary and vital things like housing (rent or mortgage), food and bills like utilities are increasing faster than the Consumer Price Index (CPI) it creates a lot of financial pressure for people, even if they have jobs. We’re seeing financial stress happening to people who may never have experienced it before, including in Defence.

Michelle Marquardt, head of prices statistics at the Australian Bureau of Statistics (ABS), recently explained that “Increases in living costs in the March 2024 quarter ranged from 0.7 per cent to 1.7 per cent, depending on the expenditure patterns of the different household types, compared to a rise of 1.0 per cent in the Consumer Price Index (CPI).”  This broadly means that costs of goods and services are increasing faster than wages.

No wonder we are struggling with the cost of living. We’re seeing discount food stores like ‘Cheaper Buy Miles’ and ‘Beyond Best Before’ open in response to consumer needs for more affordable food and other consumables. Reports indicate that this is the first time in 30 years that there has been this level of demand for discounted food. So, if you’re struggling, you’re not alone, but that’s no consolation.

Take 5 minutes and check where you’re at by doing our financial wellness quiz.

What can we do?

We can’t control external factors, but we can take the bull by the horns and manage our own situation; understand our spending, set financial goals, really think about what we need and want, get a budget sorted and understand how to speak with creditors when we struggle to pay bills. 

In a cost-of-living crisis it’s more important than ever to set financial goals. At such times these goals might need to focus on things you need in your life leaving goals for things you want for a bit later. This will be different for everyone, but it might involve short term goals like saving for the power bill or the car registration. Once you have worked out how to be financially prepared for regular expenses, you can set goals for some of the things you want – these might be more medium-term goals during times of financial challenge.

There might need to be conversations with partners and family members about different ways of prioritising things on which money needs to be spent. Everyone has to contribute to the plan to make it work. The ball is in your court. You can choose to feel annoyed and ignore it, or you can take action, prepare yourself and maintain your financial fitness.

Go to the Moneysmart Savings Goals Calculator to work out how long it will take to save for some vital goals, and then add them to your budget.

Visit the Budgeting section on our website and access the Centre’s budget calculator. You can use this as a downloaded spreadsheet or live as an online calculator.

Nobody is going to make you do a budget. There is no legal requirement, no legislation, no rules, but it’s the key tool to help you manage your cost of living and prevent a crisis.

Creating a budget is also not easy. You might have to make some hard decisions when times are tough – like giving up something that’s not vital for a while to pay the bills. It’s okay. Don’t forget, once you get the finances under control, you can always review that.

What if I can’t pay?

The worst thing about financial stress is that it compounds and affects everything in our lives. We may feel shame and have difficulty talking about it, especially if we are used to managing our affairs well. It can make us feel inadequate. Sometimes there is just one thing that pushes us over the edge – a sick child, personal illness, inability to work, a death, a car accident, an injury, a rent or mortgage rate increase….

Again, take that raging bull by the horns and speak to someone about it. Communication is the key to successfully managing a financial crisis.

Your first chat should be with the creditor whose bill you are struggling to pay.

Utility companies respond when you tell them you are doing it tough and will assist you to make an affordable arrangement. Be honest about what you can afford and don’t make unsustainable arrangements.

If you can’t make a loan payment, call the lender and tell them you are in financial difficulty; and actually use those words. There are laws that compel creditors to work with you to resolve your financial difficulty in relation to how that loan is managed. It’s hard to do but gets far better results than putting your head in the sand.  Check out ndh.org.au to find letter templates and guides about what to say to a creditor.

Use your bank statement and check for direct debits for items or services you no longer need and cancel them. Get in control of what’s going out of the bank account.

Don’t get tempted to get more credit to cover the situation. It won’t help.

If you’re not sure how to do any of this, make your second chat with a financial counsellor. Call the National Debt Helpline on 1800 007 007 or call Bravery Trust on 1800 272 837 to speak with a free financial counsellor. Financial counsellors assist Australians in financial difficulty with information, advice, advocacy, and support. Financial counsellors can also assist with referrals for material aid and other assistance or support if needed. If you need some support to discuss this further, contact us via the website.