Prepare for a Recession: 4 Top Tips
Last updated on September 21st, 2022
Another interest rate hike was implemented by the Reserve Bank of Australia at the beginning of September. This is the fourth consecutive month, raising the cash rate to 1.85%. The continuous interest rate hikes have negatively impacted Australian house prices, household spending, as well as the volume of dwelling investments. The lower consumer confidence may likely lead to a recession in Australia, and you will need to prepare for a recession.
Goldman Sachs Group Inc. predicts a 25% chance of a recession in Australia in the next 12 months. This was based on their review of data from the past 75 years to check for indicators that could result in a recession. The coming months will be financially tough for you and your family. Hence, it’s best to prepare for a recession and to have a better chance of facing upcoming challenges.
1. Review your budget.
The first step in getting your finances in order is to monitor your spending to check where your money is going. You can do this by simply checking your bank statements. It can also help the assessment if you assign categories for your spending.
Once you have a picture of what you spend your money on, the next step is to set your budget. Find a sustainable way of doing this. Consider the following options:
- A dedicated notebook for balancing your expenses and income
- An app on your phone
- A live excel file on your laptop that’s updated regularly
Take note of all your liabilities, daily expenses, discretionary purchases, and even large expenses. The latter usually sneaks up on you if you don’t prepare for it. Large expenses include car registration and quarterly energy bills.
Once you’ve pinned down your monthly budget, make sure to revisit it regularly. Check if there’s something you can adjust to lessen expenses. Remember that prices are continuously rising; frugality wouldn’t hurt these days.
2. Reduce your debt
If you have the capacity to pay your debts on a regular basis, it’s best to prioritise them in your spending. This way, you’re not only reducing your principal amount owing, but you’re also reducing your interest charges.
Do you have multiple credit cards or loans? Do you find it hard to stay on top of your repayments? Then, consider rolling them into one debt consolidation personal loan.
You may compare available personal interest rates in the chart below (correct as at 01/09/2022 via Lenders website):
| Lender | Product | Advertised Rate | Comparison Rate | Monthly Repayment | Additional Notes |
| OMM | Low Rate Personal Loan Unsecured (Excellent Credit) | Fixed 6.25% up to 8.99% | 6.88% up to 9.63% | $916*
*computed based on $300k loan payable in 3 years at 6.25% |
· Competitive fixed rate
· Flexible payment options · No ongoing or early exit fees · Fast funding |
| Now Finance | No Fee Personal Loan | Fixed 6.75% up to 19.95% | 6.75% up to 19.95% | $923*
*computed based on $30k loan payable in 3 years at 7.49% |
· No fees for over the lifetime of your loan (T&C’s apply)
· No fees for extra repayments |
| OMM | Low Rate Personal Loan Unsecured (Good Credit) | Fixed 7.49% up to 10.99% | 7.84% up to 11.36% | $933*
*computed based on $30k loan payable in 3 years at 7.49% |
3. Build your emergency fund
Once you have your budget set and your debts sorted, the next step is to build your emergency fund. Emergencies can come in the form of unexpected medical bills, home repairs, or loss of income. Having an emergency fund can help you overcome these unexpected expenses.
Building an emergency fund can be done in small and regular payments. However, consider growing your savings if you feel like your budget is already stretched just from your liabilities alone. Hold a garage sale or find a side hustle for an extra source of income. This is a good way to prepare for a recession.
It also helps to keep your emergency fund in a separate account, so it’s out of sight and out of your mind. Some of the available savings accounts interest rates that you can compare are as follows (correct as at 01/09/2022 via Lenders website):
| Lender | Product | Maximum Rate | Base Rate | Maximum Monthly Interest | Total Interest Earned |
| Westpac | Life – 18 to 29 years old | 3.25% | 1% | $28.7 | $438.1 |
| Heritage Bank | Online Saver | 1.7%
Intro 4 months then 1.35% |
1.35% | $15 | $227.7 |
| BOQ | Future Saver Account (Under 35) | 3.5% | 0.05% | $30.9 | $472.3 |
4. Discuss with your mortgage lender
Rising home loan rates have already impacted mortgage holders. If you’re at risk of mortgage stress, try and set a discussion with your lender. You may come up with an arrangement that will be suitable for your current situation.
On the other hand, you may also consider refinancing your home loan. Make sure to compare home loan interest rates (correct as at 01/09/2022 via Lenders website):
| Lender | Product | Advertised Rate | Comparison Rate | Monthly Repayment |
| Loans.com.au | Variable Home Loan | 3.10%
Variable |
3.12% | $1,438 |
| UBank | Neat Home Loan | 3.64%
Variable |
3.66% | $1,524 |
| Tic:toc | Live-in Variable | 3.59%
Variable |
3.60% | $1,516 |
| Athena | Owner Occupier Accelerates - Celebrate (Principal and Interest)
|
3.79%
Variable |
3.79% | $1,549 |
| Yard | PAYG Home Loan | 3.29%
Variable |
3.33% | $1,468 |
Be prepared for the recession, and let Makes Cents help you decide on the best home loan for you.
Making an informed decision is one of the best ways to prepare for a recession. Specific to home loans, comparing all available options will be beneficial to you and your family.
Speak to a finance specialist today and compare home loans from over 35 lenders.
