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5 smart money moves during rising interest rates and inflation

When COVID-19 hit, having a stash of money in an “emergency fund” suddenly became a lifeline for many. (Source: Getty)

There is so much talk these days about financial misfortune. Rising interest rates, soaring cost of living, and high inflation combined with low financial literacy mean that while we know we should be doing something to protect our money, we don’t know what to do.

Too often, this means people running away financially, stalling, or “burying their heads in the sand” and pretending nothing is happening.

What if there was a better way?

The good news is there are five smart things you can do right now to protect your finances and give them a boost.

1. Create an emergency fund

Before COVID-19, we didn’t really talk about emergency funds or buffer accounts. Then when COVID hit, they were suddenly super sexy.

This is because having an emergency cash reserve means that when things happen (like unexpected repairs or illness), you don’t have to dip into the credit card.

And no, going to Europe for the summer is not an emergency.

2. Live within your means

This one seems so obvious, but it’s the secret sauce to having great finances.

Too many people try to follow both their peers and internet influencers – who don’t even buy the products they offer.

My advice?

Unsubscribe, unsubscribe, unsubscribe and start thinking about what’s important to you. It also means swapping, pausing, and canceling expenses and subscriptions to plug that leaky bucket of unnecessary spending.

3. Find additional income

Too often we go straight to tightening our belts on our expenses (which is important) but we do not think of finding more income. Whether it’s a second job, a side hustle, becoming a delivery driver, doing online surveys, renting out your stuff, or even just filing your tax return – finding more income can be a great way to offset the rising cost of living and means you’re not solely dependent on your salary.

If you have a mortgage, one of the easiest ways to find more income is to ask your bank for a rate reduction. In my course, My Financial Adulting Plan, the average rate reduction received was 0.50% and the biggest savings was $15,000. Every year.

4. Invest for the long term

Over the past few months we’ve seen so much uncertainty and conflicting advice about whether the stock market will continue to fall, whether real estate will fall, whether it’s safe to go into debt, and so on.

Here’s the thing, nobody has a crystal ball. Yes, the experts can make an educated guess, but let’s remember that most experts predicted a 20-40% housing market crash when COVID arrived, but the reverse was true.

Instead, it’s about investing for the long term, letting the power of compound interest work its magic, and not reacting to short-term market ups and downs.

5. Diversify your investments

Many Australians have a salary, a house, a retirement pension and that’s it.

This means that suddenly your retirement pension balance is critical because it is the only source of income you will have when you stop working. That is, unless you’re ready to sell your house and downsize, but not everyone wants to do that.

It also means if your job is at risk because you may not have liquid savings or other sources of income to fall back on.

This is why I am a fan of multiple sources of income and diversification. Diversification can be across property, stocks, and businesses so that if one goes down, the other is stable or up. You also want to make sure you have diversification in each of these classes. For example, avoid buying your apartment building in the same suburb as your home.

If you’re already doing these five things, great job. Now think about your next financial step.

And if you don’t do any of those things or maybe one or two, that’s okay. Pick one to start with, then add another each week or month so that within 12 months you don’t just hope you’ll be fine, you know you’ll be fine.

Melissa Browne is a former financial advisor and now a financial educator. Join his Financial Self Care Challenge which starts September 5 at www.melissabrowne.com.au/challenge

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