Still, the prospect of what will happen after that is troubling. Higher costs will eat away at my monthly savings reserve, either delaying my retirement day or meaning I retire with less.
At some point, this will also mean that I will have to reduce my standard of living – the situation that many recent borrowers already find themselves in.
A degree of fear about what is to come is, in fact, the precise emotional response that Lowe hopes to elicit from borrowers.
However, Lowe doesn’t just want us wallowing in fear. He also wants us to take action, cut non-discretionary spending and tighten our belts as best we can. Collectively, these measures will remove demand from the economy, helping to dampen price pressures.
So here are five things you can do today to help you navigate what’s to come.
Remember it could be worse
The good news is that interest rates are only rising because of the underlying strength of our economy.
Unemployment is at its lowest in nearly half a century, and as long as you keep your job, you have income to continue funding your mortgage.
Landlords might also be convinced that there is, for most people, real psychological value to be gained from finally being on the housing security ladder.
Spare a thought for renters, who also face rising living costs with less housing stability.
Run your scenarios
I did my calculations this week. My monthly mortgage payments are set at $2,599. If I switched to one of the best variable interest rate loans available on the market (about 2.59%), I would pay $300 more per month.
If the cash rate rises to 2.5% – which is what most economists expect – that pushes this lowest floating rate product to 3.74%, and I would have to find $733 more per month. I expect this to be at least what I will encounter in the middle of next year, at the end of my fixed rate period.
If the spot rate goes to 3%, I will be paid an additional $932 per month. And so on. At some point, my monthly budget surplus of around $1,500 would be extinguished and I would have to take action.
Make a list of expenses you can ditch
Worst-case scenario, I could stop contributing to my superannuation, despite this strategy offering some of the best tax breaks in town.
My $386-a-month gym membership might be worth it, though I’d probably rather sacrifice my super to make sure I reach retirement in top shape. My vacation budget of $500 a month could also be reduced – I will have to do Zen at home.
After that, my budget is already rather thin. I only budget $150 a month for eating out and $20 for alcohol.
There are also private tuition fees to pay, but I would rather move to a better paying job than sacrifice that, which brings me to point 4…
Consider other employers or jobs
Australia’s historically tight labor market is a key driver of rising interest rates, but it also presents opportunities for borrowers, especially highly skilled workers.
Now is the time to dip your toes into the job market to investigate what alternative employers are paying and/or to ask your boss for a raise.
Start tracking and cutting expenses
Shop around for your mortgage interest rate. Review and compare insurance premiums and coverage at least once a year (and have policies with the highest possible deductible).
By far the best way to identify unnecessary expenses is to start tracking them in a way that works for you. It can be a spreadsheet or just plain old pen and paper. You can use my resources at jessicairvine.com.au/resources.
Knowledge is power and knowing where your money is going today will put you in the best position to find savings tomorrow, if needed.