Build up your defences

The cost of living is going up and investment returns are going down, so now is the time to make sure our finances are strong enough to withstand any shocks

Rising interest rates. Inflation. Recession. Stagflation. It’s a nasty list of potential challenges for our finances. From the post-Covid boom that no one expected us to have, the economic situation seems to have gone pear-shaped fast

Just last year, the Reserve Bank was telling us there would be no need for interest rate rises until at least 2023. High inflation was something we hadn’t dealt with in decades, and the economy was bubbling along.

Now we have inflation set to rise to around 7% by year’s end, interest rates are on the way up and there are concerns those rising rates will slow economic growth and push us into recession.

No one can say for certain what’s ahead, but at times like this it pays to take stock of your situation and ensure your finances are structured to withstand what gets thrown your way.

“These are very uncertain times,” says Richard Dinham, Fidelity International’s head of client solutions and retirement. “For most of our lifetimes inflation hasn’t been a problem and interest rates have been falling.”

But he says supply problems, widespread labour shortages and the spike in oil and other prices caused by the war in the Ukraine are all feeding into an inflation shock.

“It will probably be short term, but it may be around for a year or two,” he says. “And that has led to central banks putting up interest rates to try to control it.”

While there have been rate rises in recent decades, Dinham says most people have never seen rises of the magnitude we’re now seeing.

“I don’t think we’ll see interest rates going back to where they were decades ago, but they will reach an equilibrium above where they were.”

So, what can we do to prepare ourselves tor a possible storm?

Over the following pages, you’ll find strategies to fine-tune your household budget, savings, super, property and share portfolio to help put you on solid ground and improve your financial wellbeing.

Budgeting

Shave household costs

Now is a good time to stop and take stock of your financial situation, says Genene Wilson, principal adviser with Finesse Financial Advisers. An obvious place to start is your household spending.

“A lot of people have no idea what they spend,” she says. “It is a good time to sit down and review and plan your spending. I’m not saying don’t buy a coffee, but you need to plan for your necessities first.

“Work out where your money is going and make mindful decisions about it. If you stick your head in the sand, things will only get worse.”

Graham Cooke, head of consumer research at Finder, a comparison website,