After a tough few months of high inflation and interest rate hikes, more Aussies entered the year with greater financial stress and uncertainty. Paying off a home has become more costly and inflation’s 32-year high of 7.8 per cent for 2022 is impacting household budgets.
Households are already re-evaluating their budgets and making hard decisions: while consumer spending was strong all through 2022, November to December retail figures – a 3.9 per cent drop – show rate hikes and high inflation have started to bite. Clothing, footwear and personal accessory and department store retailing will take the greatest hit, with trade already decreasing by 13.1 per cent and 14.3 per cent in late 2022, respectively.
What actions will households and SMBs take to survive?
But Aussies will have to budget around expenditure on food, with trade in this retail sector at its highest in almost three years, indicative of the inflationary price hikes commencing in 2022. Households and small businesses will make more hard decisions to cope with the new financial and economic environment – and here are forecasts for the next 12 months. 10 actions households and small businesses will take to survive financially in 2023 include:
Move jobs for better pay or more flexibility
More Australians are choosing to leave their existing employment for a change of scenery or better workplace. The beginning of 2022 saw the highest annual job mobility rate in the last decade, with more than a million Australians changing employment and 2.1 million either choosing to leave or losing their jobs. The 3.1 per cent rise in annual wage growth in Australia was outpaced by the increase in consumer prices at 7.8 per cent by late 2022.
It should come as no surprise that over 12 per cent of Aussies are opting for jobs that allow flexible work arrangements or a higher pay. This figure will grow in the next 12 months.
More savings will go into high-interest savings accounts
Crypto crashes, share-market volatility, declining property prices, rising interest rates and skyrocketing inflation have turned many investment portfolios on their head, disrupting traditional ideas of safe-haven investments. In this year of uncertainty, more people will increase their savings – and will look for safe, high-return methods to help them.
Research shows 47 per cent of Aussies believe high-interest savings accounts and superannuation will be the best places to put their money and get a return on investment in the coming year. These two options outranked investment property, shares and crypto.
Just 7 per cent of survey respondents would put their money into precious metals, 18 per cent into investment property, 11 per cent into shares and 3 per cent into cryptocurrency.
Aussies to switch from traditional banks to non-bank fintech services
Even before the RBA began raising rates, banks were already increasing fixed-rate loans in anticipation. Now, loan rates are sitting 4-5 per cent higher than the RBA cash rate. More rate rises this year is likely to drive Aussies to seek out smaller non-bank fintech services that offer better deals, including lower exchange rates and fees, than traditional banks.
These may include lenders, specialist money transfer platforms, virtual credit cards, and insurers. Nearly three quarters (71 per cent) of Australians say they have lost at least some trust in banks due to their high loan rates and fees, and 74 per cent would consider switching their accounts, loans or transactions to more affordable online services.
Mortgage refinancing will grow this year
With interest rates set to rise again in this first quarter of the year, it is no surprise that roughly 2 million Australians are intending to refinance their current mortgage.
Home owners will look for a better deal on their mortgages, as two third of mortgagees will come off fixed-rate loans by the end of the year and feel the full impact of the last few months of rate increases. Home owners who refinance will not only seek a better interest rate, they are likely to develop a loan-repayment strategy with more flexible and multiple fixed-rate and variable loans to reduce their interest further and shorten their loan terms.
2 in 3 Aussies won’t look at AUD movements when travelling
While many households will tighten their budgets this year, Money Transfer Comparison study shows a majority are still willing to put money aside for travel no matter the direction the Australian dollar will go, after Australians were locked inside our borders for two years.
If the AUD dips, 62 per cent would still travel overseas, two-thirds (63 per cent) would still purchase products overseas and almost three-quarters (71 per cent) would not avoid investing overseas, while 79 per cent would not avoid gifting or donating money overseas.
Make passive income from personal assets
More Aussies will look to peer-to-peer services to generate passive income stream by making valued and rarely-used assets available on rental platforms. For instance, Swimply, dubbed the Airbnb for backyard pools, allows Australians to rent their pool by the hour.
Similar services have also been created for parking and storage spaces, motor vehicles and various kinds of chattel like tools and machinery. Many will see these services as a way to make their rarely-used assets work for them, and are assisting others in the process.
1 in 3 SMEs will seek financing to get through a tough year
Many small businesses have also been hit hard by inflated costs including supplier goods, wages and petrol. In fact, 72 per cent of SMBs – who already survived through tough economic periods during COVID – have admitted they have been hit by rising expenses.
A report on the top inflated expenses that businesses are challenged with found 31 per cent are having difficulty paying suppliers and petrol, and 26 per cent are struggling to pay wages. Many businesses are likely to take out loans to weather a tough year ahead.
Mixing business and personal finances to get through
New research reveals that business directors could borrow from their businesses or personal finances to survive, despite the potential risks to their financial security.
In a potentially tough financial period, more than half (56 per cent) of Aussie SME owners either have, or would, borrow funds from their businesses to solve personal financial issues, while 3 in 4 would support their businesses using their personal savings or assets.
Borrowers will often take out a new personal loan to indemnify their existing debts, resulting in a single loan – and set of repayments – over a set period. By refinancing existing debts into a single loan, borrowers are afforded greater control over their finances.
Debt consolidation simplifies the repayment process. It is the most popular reason for taking out a personal loan in Australia, with about 40 per cent indicating this as their reason. Amid rising interest rates, borrowers should compare the interest rate for the personal loan against your existing ones to ensure that refinancing will be worthwhile.
Alon Rajic is the Founder and Managing Director of Money Transfer Comparison, a global comparison website helping Australian businesses and individuals find the best rate in international money transfers to and from Australia.