Top tips for how to save during high inflation

It’s an unfortunate truth that high inflation can lead to a decrease in your purchasing power and a drain on your savings account. Even everyday necessities like toothpaste, petrol and grocery store runs can put a strain on budgeting and have us making hard financial decisions about what’s truly needed and what isn’t. But high inflation doesn’t have to equal financial disaster; we’ve rounded up some of the easiest ways for you to save during high inflation both over the long term and short term. Read on for some smart money saving tips.

Inflation remains elevated due to supply-chain issues versus the demand for goods. Simply put, too many people want something there is not enough of. In order to offset and mitigate the effects of inflation and to limit demand, the Reserve Bank of Australia (RBA) raises interest rates for consumers. This means it costs more to borrow money, and many consumers will be limited as to the amount they can borrow.

As interest rates rise, which they are currently in the process of doing, real estate and house prices tend to decline overall and consumers feel more financial vulnerability. This can be particularly challenging to families and individuals without an economic buffer, such as a hefty savings account, to fall back on.

Personal finances are, well, personal, and everyone’s situation is different. Higher interest rates can equate to higher variable home loan, personal loan or even credit card payments. Bills that many of us pay every month, and paying more for these leaves us less money for other things.

Many consumers choose to refinance their home loans during these times to combat inflation and to look toward a long-term solution to saving money. Refinancing your home loan may prove a smart option to help reduce costs, depending on your situation, and it may go a long way towards combating inflation. When your home loan repayments cost less, you can save more.

Comparing a range of home loan options to see if there is better option available could be a good place to start.

To maintain confidence during uncertain times like those of high inflation, it’s wise to build up a nest egg where you can – emergencies come in all shapes and sizes, so preparation is paramount.

It can help to get into the habit of paying yourself first. Pull a certain amount from every pay packet that goes toward savings. Savings accounts offer safe places to store money for emergency funds or even unexpected expenses like vet bills or school uniform fees, and though the return on that investment is usually lower, many consider it a fair trade-off for the easily accessible nature of the funds.

Another pro for savings accounts is that, when inflation strikes, the market becomes volatile and stock prices can plummet quickly, rendering your investment less valuable in the blink of an eye. Many savings accounts aren’t subject to the same unpredictability, and can amble along at a dependable but comfortably steady pace.

For a generally higher yield return however, investing in the stock market or even real estate may also be advantageous, but the risk is significantly higher than what one would experience with a traditional savings account. Before investing it’s worth speaking with an expert who can provide advice about your personal circumstances, such as a qualified financial planner.

For consumers without a financial buffer like an emergency fund or savings account, a high inflation rate can mean less stability, security and a generally unpleasant lack of predictability in daily life.

Our top tip for saving more? Simply spend less. Okay, it's definitely not that simple, but you may want to conduct an ‘audit’ on your spending habits and triage. Eat out less overall or choose to go for an economical breakfast or lunch over an expensive dinner. Planning ahead helps – convenience costs more. At the grocery store, buy what’s in season and what’s on sale. Buying in bulk can also save you a surprising amount.

Reduce electricity bills by limiting your consumption where possible – it all adds up! Examine your digital subscriptions like Netflix and Foxtel, automate your savings through your employer, and shop around for better deals on things like insurance, gym memberships and home loans.

Have a savings goal and start a savings plan. Practice makes perfect, and before long it will become second nature. Moneysmart recommends tracking your spending over a period of time to get a clear picture of where you’re spending, so you can look at it later with a critical eye. This can provide practical ways of getting started for even the most inexperienced saver.

Wondering how to best save during high inflation? Here are our top tips:

• Automate your savings. Set yourself up for success when you need it the most. Saving doesn’t have to be painful, and the easiest way is to make it automatic, but first you’ll need to work out where it’s going. Services Australia recommends beginning with a budget and using the free savings goals calculator from the Australian Securities and Investments Commission (ASIC) MoneySmart website.

• Plan your steps. See where you are, and where you want to be, with steps you can take to action your plan and bulk up your rainy-day fund.

• Ditch the impulse buys. Where you can, avoid overwhelming your credit cards with needless purchases like impulse buys.

• Consider refinancing. Your home is likely your greatest asset, but your home loan is probably your largest debt. By switching home loan providers, you may be able to take advantage of a lower interest rate or a loan with better features, which could reduce your payments in the short term, leaving you with more money in your pocket. You can use this money to push into savings, to pay off other bills or even to pay extra on your mortgage, saving you interest in the long run. Always check terms and conditions because sometimes ending a loan early will come with significant penalties, and of course, calculate what your total repayments will be, and seek advice on your options if you need it.
• Negotiate. You may also be able to negotiate more favourable terms with your lender if you have a proven record of on-time payments and strong credit history.

Why not get started by comparing a range of home loan options to see if you can save today.