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? 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 picked up again, and now the war in the Middle East has sent fuel prices soaring.
The Reserve Bank has had to lift interest rates three times this year, completely reversing last year's cuts. Many Australians are feeling the pinch, and it's time to take action. While cutting back on individual costs can help, some of the biggest savings can be found in other areas.
Understanding Needs vs. Wants
Before we dive into cutting back, it's crucial to understand the difference between discretionary and non-discretionary spending. The Australian Bureau of Statistics defines discretionary spending as "optional" items like recreation, alcohol, and holidays. Non-discretionary spending, on the other hand, includes essential items such as food, housing, and healthcare.
The problem is that prices for these essentials are rising faster than discretionary items. This means that some of the largest savings can be found in the things you can't go without. So, let's explore some strategies to save money on these essential expenses.
Avoiding the Loyalty Tax
One of the biggest obstacles to saving money is the "loyalty tax." 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, low-income households, who would benefit the most from switching essential service providers, are the 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. If switching costs are too high, consider saving on other essentials like food and groceries.
Secondhand Shopping and the Fight Against Inflation
Cutting back on non-essentials like takeaway coffee or ending subscriptions can save 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.
Secondhand marketplaces also 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. This practice might also be anti-inflationary, shifting demand away from stores and reducing competitive pressures that underpin rising prices.
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 keep your business because you stop choosing them. 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.
