The cost of living crisis has forced many Australians to adopt lockdown budgets similar to those imposed during the pandemic in order to survive.
Next Wednesday's release of the June quarter CPI data will be crucial to the Reserve Bank of Australia's interest rate decisions on Monday and Tuesday the following week, but ahead of this, average Australians are making big sacrifices to stay financially afloat.
During lockdown, similar sacrifices were made to us to beat COVID-19: no holidays, no restaurants, postponed weddings, no wandering around the shops. Life became simpler, less complex and cheaper, and savings soared to record levels.
Sign up for The Nightly newsletter.
Be the first to check out our digital newspaper and get handpicked daily stories and breaking news delivered straight to your inbox.
By continuing, you agree to our Terms of Use and privacy policy.
For many, this was a wake-up call that simpler, cheaper lifestyles were appealing from both a mindfulness and economic perspective.
Lockdown budgets are back in force today, with Australians putting their social lives on hold, postponing holidays and putting off major life events like weddings and births in a “cost of living lockdown”.
More than three-quarters of Australians will be making tough decisions to cut spending to cope with rising living costs over the next 12 months, according to the latest data from Compare the Markets.
Nearly half said they would cut back on social activities (45%) and 37% said they would cancel vacation plans in order to save more to pay for other living expenses.
Some said they would make lifestyle changes, such as switching to a higher-paying job, working remotely to save on travel costs, or moving to a cheaper location.
Some even said that major life milestones, such as marriage and starting a family, would be postponed.
Only 23% of Australians said they would not change their lifestyle because of the rising cost of living.
The latest ABS statistics show that discretionary spending fell by 1.9% in the year to May but spending on essential services increased, with spending on essential services rising by 2.3%.
This new research suggests that discretionary spending is set to shrink further over the next 12 months – and this is exactly the challenge RBA Governor Michelle Bullock has set us to combat surging inflation.
Economic theory dictates that cutting spending should reduce demand for goods and services, which (in theory) should reduce pressures that would lead to higher prices and inflation.
To help cut spending, the RBA increases interest rates so we end up using our extra cash to pay loan repayments which are more expensive than buying things from the shops.
In effect, the RBA is forcing borrowers' income towards their loans rather than their lifestyle.
Unfortunately, these lifestyle sacrifices have so far not done much to lower the cost of living in the fight against inflation, as other factors such as construction costs, rents and insurance premiums have skyrocketed – all factors beyond the direct control of consumers.
Hopefully these lifestyle sacrifices will help improve CPI numbers next week, bringing them back towards the RBA's target of 2-3% – and if not, hopefully Bullock and the RBA Board will take these sacrifices into account when considering raising interest rates.
The rising cost of living has undoubtedly put a lot of focus on managing one's finances among Australian households. The COVID-19 lockdown taught us discipline as we had no choice but to stay at home and save money. Now, many families are adopting a similar mindset to weather the cost of living crisis.
It can be hard to fight the fear of missing out, but playing it smart and putting some money away in an offset or savings account might put you in a better position in the long run.
But what worries me more is seeing people putting off things they may regret, like having a family.
You might think the only way to save money is to cut back on things you love or postpone big life events, but you might be surprised to find that there are other ways to put money back in your pocket.
Take a closer look at big expenses like your mortgage, utilities, and insurance, and you might be surprised at how much you can save.
