Uncensored Money Season Five: Could We Be Back In a Time Of Rising Interest Rates?
Melissa Browne: Ex-Accountant, Ex-Financial Advisor, Ex-Working Till I Drop, Now Serial Entrepreneur & Author, Financial Wellness Advocate, Living a Life by Design | 8/07/2024
Show Notes
In this solo episode, Mel talks about interest rates and inflation. Terrifying words for most Australians, Mel talks to what these latest inflation figures mean, and what other options could work to lessen interest rates.
Tune into this episode of Uncensored Money where we break down what's going on with the economy, and Mel's opinion on whether we may or may not be in for more rising interest rates.
Books and resources mentioned in this episode
If you're on insta, come play over at @MelBrowne.Money and make sure you’re signed up to Mel's Money Musings for more tips, tricks and ideas on how to best work with your money.
Finally, if you love this episode please make sure you subscribe and leave us a review.
Transcript
Mel: Hey everyone. I'm Mel Browne. I'm an ex-accountant and ex-financial advisor, so I have the theory, but I also have the life experience. I'm now financially independent in my own right after coming back from less than nothing in my early thirties. I want this podcast to be like a chat with your girlfriends about money. My aim is to help you discover why you're behaving the way you are with money, to suggest new ways you might behave that are a better fit for you, and to increase your financial literacy and financial confidence. I hope it inspires challenges, educates and empowers you with how you do money. So let's get into it. Welcome to Uncensored Money.
Mel: Today is a solo episode and I want to talk about interest rates and inflation for the second half of the year for Australia. And that's because in June we had an unexpected inflation result with the Reserve bank expected to, for inflation to be sitting at about 3.6 or 3.8%, but inflation actually jumped from 3.6% in April to 4% in May.
Mel: And you might think, yeah, but that's only 0.2 of a percent off. But the problem that we have is that the Reserve bank wants inflation to be sitting at two to 3%. That's its guide if it's not on its way there. So it's happy for it even to take a while, but what it doesn't want it to do is to get stuck for it to get stuck at the four to high threes where it seems to be getting stuck now. And at the last Reserve Bank meeting, Michelle Bullock, who was our governor, said that she was watching inflation rates with interest and she was really prepared to move interest rates if inflation didn't come under control. Now what does that mean for us? Well, we have another inflation rate that will be announced before or reported before the Reserve Bank meets in August. The problem is we also have a tax cut that's happening in Australia on 1st of July.
Mel: So that means more Australians will have money in their pocket potentially to spend from 1st of July. Now those tax cuts won't be included in the June figures. So my suspicion is that if June shows a tapering off of inflation, if inflation was to move from say four, back down to 3.6, my expectation would be that the Reserve Bank would sit and wait for a month and not raise interest rates and wait to see what the impact of the 1st of July tax cuts were. However, what a lot of economists are predicting that if that June quarter inflation rate has got a four in front of it, then the reserve bank will act to increase interest rates. And I've gotta be honest, it's something I'm really surprised by. Certainly if we look overseas, other uh, countries are holding interest rates and have held them for quite some time. There's even examples of one or two countries starting to drop their interest rates.
Mel: So certainly in Australia the expectation was, and the markets were pricing it in, economists were talking about the fact that we would hopefully see a hold of interest rates and maybe towards next year, maybe even mid next year, a dropping of interest rates. The problem in Australia is that we are facing these inflation batters and it's not just one thing, you know, if it was just rents or if it was just the cost of housing or if it was one sector, you might look at that and go, you know what, maybe that's just an outlier. Maybe you know, it's fuel. That's the thing that's driving an up inflation. But if we look at the, the inflation figures, it really was across the board. So over the last few months its products that have really dragged inflation down towards where we need to be. But that product deflation, if you like, is starting to to stop.
Mel: And now we are seeing inflation across the board, you know, from alcohol to fruit and vegetables. We're seeing electricity, we're seeing fuel, we're seeing rents, we're seeing professional services. So it's not just one thing that's happening, it's happening across the board. And I've had a lot of people contact me and say that it's just really unfair that why doesn't the Reserve bank do something else? Like it's not fair that really mortgage holders are the ones that are being penalized for this. But I really want you to understand that the reserve bank is a blunt instrument. It has one lever to pull in order to affect interest rates and it's just gonna keep pulling on that and pulling on that, so to infect inflation and it's gonna keep pulling on that. And in pulling on that until inflation goes in the way it heads, what I would love to see if I could wave a magic wand, and maybe this is something that you could contact your local member about your federal member, is that I believe that rather than just have the stick approach, we also need a carrot. I mean, if you think of trying to get your kids to do something, if you say stop spending, stop spending, they're probably just gonna spend anyway, right? But if you said, Hey, what if we give you an incentive to save? What if we were to reward you for saving, that's gonna make them more inclined to do that, right?
Mel: I don't know about you, but sometimes I wish there was an easy way, a silver bullet, a magical unicorn, a fairy godmother ready to grant me three wishes. I mean, think of all the miracle diets, fitness fads, promising a six pack in six weeks, or finance bros promising riches by following this easy formula. Do you believe a word of it?Well, the part that longs for a quick fix might be taken in, but you are smarter than that. Personally, what I believe in is consistency, educating myself, finding an expert to help me, surrounding myself with a community who are going to motivate me to keep going and make me feel like I can do it because they're doing it too or are further down the road than I am. That's exactly what we've created inside the My Financial Adulting Plan. If you feel like you're on top of your finances, you have a plan for this year that you're super comfortable with and have everything you need to make that happen, then just ignore this ad. But for the rest of you, make sure you check out my life-changing 12 week course or for less than the price of a cup of coffee a day. Head to the show notes to join the wait list for the next round. Or you might be lucky enough to find that the doors are open and you can join now.
Mel: So in my view, having something like a rebate or a tax rebate and Australians love a tax rebate to have some sort of tax rebate on savings, some sort of tax rebate on investing, that would mean that any extra monies that we are receiving into our household, we are going to be more inclined to save and invest that and rather than spend it. And that's gonna have a twin effect of one, making sure our household, uh, our households are more secure, but also making sure that inflation isn't impacted. It would be actually a really easy thing for the government to do. And if they're worried about high income earners benefiting from that, then put an earnings figure around it. Say that if you earn over two 50 or the top income bracket, then that rebate halves or something like that, there is a way to deal with that.
Mel: But unfortunately at the moment and worryingly for the RBA, the only thing they have in its arsenal is a one lever which is interest rates. So what does this mean for you? It means that if you are sitting here with the presumption that we are going to be looking at interest rate cuts, it's time for you to remove that. It's time for you to start to set your expectation that we may have some interest rate at least one, potentially two in this six months of the year. And if you are someone that when you hear that it makes you feel a little bit sick, then my suggestion is that you need to do three things and you need to do them with some urgency. First is if cashflow for you is just becoming abysmal and I know looking at default rates and looking at stress rates, then that absolutely is something that a lot of families are feeling.
Mel: Then make sure you'd look at, I um, created a free webinar last year called 50+ Ways to Find 10 K in 12 months. So make sure you download that, I'll list it in the show notes, make sure you download that and actually do something. 'cause I mean, who wouldn't love to win 10 K this year? How good would that make you feel? Especially if we had an interest rate coming. So what that is, number one. Number two is not to gut react to this. My concern is that we'll see people going, you know what, all I'm going to do is pay my mortgage off. I'm just going to concentrate on getting rid of it. Yeah, I just feel sick about it. And after that then I'll do it with anything else. The problem with that, and you would've heard me say it if you've been listening to me or if you follow me on social media, is that you can't eat your house.
Mel: And what I mean by that is, sure, we might have less debt, but if we aren't investing, if we aren't setting up multiple income streams, then unless we are willing to sell our house, unless we are willing to bring in a border, that's not something that we are gonna bring money in from. That's not something that's gonna bring in an income from. So I believe it's really important to yes, pay extra off our mortgage and also to be investing that might be as little as, you know, 200 bucks a month. And if you might not think that that's worth it, thanks to compound interest in investing for the long term, it abso freaking absolutely is worth it. As I yell from the hills, time and time and time again, you know, 200 bucks a month invested over 30 years at 8%, that's over 300 k.
Mel: That's, I'm sorry, if you are like, oh, that's not really worth it, I'll have it then <laugh>. And the third thing is I think it's really important to increase our financial literacy. I see a lot of people tightening up on the wrong things, so they're cutting back on things that they shouldn't necessarily be cutting back on and continuing to spend on things that aren't helpful. And increasing your financial literacy is realizing that if you have a credit card, you'll be overspending by as much as 18% simply by having a credit card. Even if you paid off every month, that's done in Bradstreet research after pay, it's between 18 and 40%. It's making sure you understand how you're spending. It's doing things like doing a financial detox. It's figuring out what does it cost me to keep my lights on every month and where can I cut back and where can I find more income?
Mel: It's creating goals and figuring out, right, I, yes, I need to make sure I have choice today, but even in the midst of uncertainty in storms, I wanna make sure I'm still looking after future you. And if you are going, yeah, Mel, but I wouldn't know where to start with that, that then please make sure you jump on the wait list. For the My Financial Adulting Plan, we open our doors in, I think it's a week or a week and a half, and pre-sale is getting some really cool bonuses, so we'll put a link down below. But we're also running a couple of webinars that are completely free, that are all part of the launch. And again, it's investing in your own financial literacy where for these webinars, I always hang around and ask questions and make sure that you have some practical strategies. So the first one is all about debt.
Mel: So I'm giving you 10 things that I think you should be doing when it comes to your debt and you might be surprised or you might be challenged by what some of the 10 are. The second one is, What a Difference a Decade Can Make. You know, I was someone that at age 33, I had five figures of debt, thanks to a really stupid decision I made when I divorced my first husband. But it took me, it was about 13, 14, 15 years to become a multimillionaire and to really have financial independence. The difference a decade made for me was incredible, was life changing. So if you are somewhere going, oh, you know, it's absolutely worth being strategic and making moves now because if you think about it, you know, I don't know about you, but I feel like life is moving at a a faster and faster, faster pace.
Mel: I blink and I'm a decade older. I blink and it's a year past. I don't want you to blink and you go, oh God, I meant to do something about that. Let's make sure this is when you decide to do something different for your finances. So I'm gonna link both of those webinars in the show notes below. I know that there's a lot of scary talk at the moment with inflation rates and interest rates rising and more. The most important thing we can do is not gut react. The most important thing we can do is not to put our head in the sand to abdicate financial responsibility or pretend it's not happening. The most important thing we can do is make a plan to put you back in the driver's seat of your finances. You can abso freaking lly do it.
Mel: If you enjoyed this episode, we would love it if you subscribed and give us a review, then make sure you come and play with me on Insta. I'm at @melbrowne.money Remember there's an E on the end of Browne. I'm one of those fancy Browne's, and don't forget to check out the show notes for even more ways you can work with me to transform your finances.
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