Inflation has hit a 40 year high in the USA. While Australia’s inflation rate is not as pronounced as other countries, our rate is higher than we’ve experienced for some time and possibly a hint of what’s to come, and you’d be well advised to be proactive and review your financial affairs now.
In this article we consider THREE financial strategies that consider the impacts of inflation while helping you to protect your lifestyle and wealth.
Inflation in Australia has picked up over the last six months. It was higher than expected in the December quarter and the forecast is for inflationary pressures to continue for some time to come.[1]
As economic conditions change, it’s important to review your financial plans and goals, and understand the options available that can protect your wealth and lifestyle during uncertain times.
#1: Consider your cashflow needs
Typically, your spending power reduces during inflation, and this is when having a strong understanding of your money, and using good financial habits is even more important. If you’re a little unsure or your financial discipline isn’t as firm as it might need to be, we can review your earnings and expenses and help you to better understand your cashflow. As part of such a review, we consider your discretionary spending, essential and non-essential expenses and identify cashflow strategies for achieving goals and importantly, continuing to enjoy your lifestyle.
We do this by reviewing your actual spending patterns and modelling the impact that using different strategies may have on your cashflow. This allows you to explore and understand the outcomes created by different strategies, such as contributing to superannuation, refinancing your mortgage or directing funds into an investment portfolio.
#2: Prioritise your debt
Prioritising debt repayment to reduce the interest payable can improve your cashflow and overall wealth position. Take the time to consider your options for consolidating personal debt, refinancing your mortgage to a lower interest rate or securing more flexible payment options. These may include a home loan redraw facility and an offset bank account.
Leveraging your debt for investment purposes (or debt recycling) may also be an appropriate strategy for growing your wealth during inflationary periods. Investment assets are more likely to generate a greater return than current bank interest on cash savings, and also offer the potential for longer term growth. There can also be tax advantages, as interest payable on this type of debt is usually tax deductible.
In collaboration with other aligned professionals, such as your accountant, we may also be able to identify tax efficiencies or more tax-effective ways to structure your debt to achieve your financial goals.
#3: Review your investment strategy
It’s always important to continue growing your wealth during periods of high inflation. Directing funds into a well-considered growth investment portfolio rather than solely maintaining cash accounts is a sound financial strategy regardless of periods of inflation or not.
We can help by reviewing your investment portfolio in the context of achieving your financial goals amid changing economic conditions, while also considering your attitude to risk and volatility.
In our experience your investment portfolio construction should include diversified assets that may mitigate the impact of inflation and provide a rate of return commensurate with the inflationary environment.
When the financial environment changes, our best advice is: Don’t panic.
There will always be cycles in the economy, including inflation and deflation, as well as low and high interest rates. We have significant experience and knowledge of financial fluctuations, and we are well known for our qualified advice and financial leadership that guides our clients so they may remain financially prepared and ahead of the game.
When planning your financial life, now and for the future, there are many often complex matters to consider. We’re here to help and we invite you to contact us to find out how we can help you implement proactive strategies for mitigating the impacts of inflation and building wealth for your long-term future.
Please call us on 07 3720 1299 or email admin@wealthfundamentals.com.au
Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
The information (including taxation) contained within this document does not consider your personal circumstances and is of a general nature only - unless otherwise stated. Wealth Fundamentals strongly suggests that you should not act on it without first obtaining professional advice specific to your circumstances. This information is based on our understanding of legislation at the time of writing. Such legislation may be subject to change. This publication cannot be reproduced in any form without the express written consent of the author.
[1] https://www.rba.gov.au/publications/smp/2022/feb/inflation.html