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Three ways to tighten your budget during COVID-19

Three ways to tighten your budget during COVID-19

Australia was recently handed down its report card tallying the country’s economic health by Philip Lowe, Governor of the Reserve Bank of Australia (RBA). 

He summed it up in a word: “sobering”.

The COVID-19 pandemic has torn through people’s work, social and home lives, creating a new normal that necessitates a frugal approach to both social outings and spending.

Here’s three things you may be able to do that could save money and push the dollars you're spending a little further.

Borrowing money now is pretty cheap

Lockdowns caused businesses across the country to shut shop -- some for a while, some a little longer. To help navigate the choppy waters and make sure people can afford the roofs over their heads, the RBA lowered the cash rate to the historical low of 0.25 per cent.

This is a big deal because the cash rate is what banks use as a marker when they set the interest rates calculated on home loans.

And by dropping the cash rate to the effective lower bound, banks followed suit and generally cut the cost of interest that’s being calculated on loans.

For the majority of people still in work and who have a mortgage, it presents an opportunity. Refinancing with a bank that’s offering a lower interest rate may yield savings in the thousands.

It may offer some immediate relief too by lowering regular mortgage repayments.

There is a caveat, however. Make sure the potential savings more than offset any fees that may need to be paid for refinancing with another borrower.

Should I ‘mortgage holiday’?

The financial regulators APRA and ASIC recently laid out the tools banks can use to extend the deferral of mortgage payments for people experiencing a loss of income during COVID-19.

For people out of work, it’s an emergency relief that’ll help them hold onto the family home. But for those returning to work, not resuming repayments when possible risks the expense of interest compounding on a loan that’s not being paid down -- potentially adding thousands to the balance. And months or years in additional repayments.

How hard are your savings working for you? It probably could be harder.

Cheaper home loan repayments are great, but the financial instrument -- the cash rate -- used as a benchmark for mortgage interest rates is also tethered to savings accounts. 

So when mortgage interest rates are at historical lows, as they are now, the interest your savings account is making is likely to tumble too.

The objective then is to have a mortgage with a really low interest rate, and then a savings account where the interest rate is high. This way you’re spending less and earning more. 

More than 40 banks recently cut interest rates on savings accounts, effectively resulting in your money earning less. 

The opportunity here is to find an account that’ll make sure your savings are maximising their earning potential.

Sell. Your. Unwanted. Clutter.

There’s a good reason for the adage: ‘one man’s trash is another man’s treasure’.

People value treasure, and according to Gumtree, they’re prepared to spend $5800 on average for the 19 items lying around the homes of savvy sellers -- think unwanted furniture, clothing, electronics, etc.

The $5800 to be made is the most in the decade since Gumtree has been conducting its Second Hand Economy report, the company said, and it’ll go a long way in paying the bills that 63 per cent of people worry they won’t be able to afford.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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