Buckle up: Tips to trim the budget this Christmas
Are you feeling the pinch? Perhaps you’ve already cut back on discretionary spending. Or are contemplating a much more frugal Christmas season.
You’re not alone. New research shows while Australians are tipped to spend almost $5 billion on online shopping in the leadup to Christmas this year, almost half of those surveyed are planning to spend less than the same time in 2022. And almost 80 percent said they plan to cut back on non-essential spending in the same period.
Inflation and a lack of savings were cited as the main concerns as we head into the peak spending period that also encompasses the Black Friday sales. But there’s more to this cautionary tale. We take a closer look at what’s behind the belt tightening and how you can ease the pressure on your household income without looking like the Grinch who stole Christmas.
Cost of living pressures on Australian households
A study by 9News compared a standard basket of grocery items from 2022 with the same items in 2023, revealing a staggering increase in price. The basket, containing everyday staples such as yoghurt, canned tuna, fresh vegetables and cleaning products, cost just over $112 in 2022. Fast forward to 2023, and the same basket’s contents had soared to $180, a 60 percent rise.
But it's not just groceries that are pinching the pockets of Australians. Rent, a major component of household expenditure, has seen an 8.4 percent increase over the year to September. Fuel, an essential commodity for most, is also seven percent more expensive compared to the previous year.
Arguably, the most significant blow to households comes in the form of mortgage interest rates, which have increased by 68.6 percent over the course of the year. This increase is primarily attributed to the transition of low fixed-rate loans into higher variable-rate loans. In addition to this, energy prices have risen between 9 and 20 percent, depending on your location, and are also costing us a lot more.
Factors contributing to the rising cost of living
Alex Ballantyne, senior associate at the Grattan Institute's economic policy program, said “many different things acting at the same time” have contributed to these price rises.
Mr. Ballantyne said the aftermath of the COVID-19 pandemic has led to various economic challenges. These challenges include labour shortages, increased demand for certain goods, and disrupted supply chains. These challenges have collectively exerted upward pressure on prices, affecting the cost of living for households nationwide.
Geopolitical tensions are also contributing to the disruption of supply chains and, hence, higher prices. Notably, recent actions by top oil producers, Russia and Saudi Arabia, to significantly cut oil production until the end of the year have resulted in an anticipated surge in oil prices. While allegations of profiteering have surfaced, major companies have denied any wrongdoing.
In an effort to curb an overheated economy and stabilise prices to prevent a rapid escalation in the cost of living, the Reserve Bank of Australia (RBA) increased the cash rate. This marked the RBA's first cash rate increase since June but the 13th increase since May 2022. While this move has the potential to maintain price stability, it also translates to higher interest rates. This, in turn, impacts home and business loans, with broader repercussions for various facets of the economy.
In the lead-up to the November 8 interest rate hike, experts warned another rise would have detrimental impact on Christmas trade for small and medium businesses, in particular.
Change in Australian spending habits
In response to the rising costs, Australians have changed their spending habits. Recent data reveals a discernible downturn in retail sales. In March 2023, retail volumes experienced a 0.6 percent decline, following a 0.3 percent fall in December 2022. This represents the most significant decline since 2009, signalling a cautious approach to spending among Australian consumers. Even online spending, which has been on a consistent upward trajectory, has dipped by more than five percent compared to the previous year. This dip has led to a $2.9 billion reduction in e-commerce sales.
Despite the need to tighten budgets, there are certain expenses that Australians find challenging to reduce. Essential expenses such as rent, transportation, food, childcare, and education continue to demand a significant portion of household budgets, leaving little room for manoeuvre.
To offset the impact of these non-negotiable expenses, Australians are making significant adjustments in various other areas of discretionary spending, including:
- Preference for lower-priced brands - Nearly half of the surveyed consumers have indicated that they now opt for lower-priced brands more frequently than they did in the previous year
- Delayed Purchases - Half of the respondents reported a practice of holding off on purchases until sales or special deals become available
- Deferred Purchases - 43 percent of consumers claim they are deferring purchases indefinitely, marking a significant increase from last year
- Support for Local Products - Approximately 35 percent of respondents actively seek out locally produced products, reflecting a growing emphasis on supporting domestic industries
- Environmental Consciousness - About 30 percent of consumers are choosing environmentally-friendly products, aligning their purchases with sustainability values
The Guardian also noted two more impacts of the financial strain: pet and car ownership. Firstly, there's an increase in pet surrenders and a decrease in pet adoptions. People find it difficult to afford pet care costs. Additionally, spending on pet-related products and services like premium food and grooming has decreased. Secondly, rising motor vehicle insurance rates and the high price of vehicle parts, have prompted Australians to keep their cars longer.
Changes in Christmas expenses
The changes in spending habits are also expected to extend to the holiday season shopping. Recent research shows that:
- Reduced Holiday Budgets - Approximately 46 percent plan to tighten their purse strings this holiday season, with intentions to spend less than they did the previous year
- Prudent Spending on Non-Food Items - 78 percent intend to curb their spending on non-food-related items during the Christmas season
- Embracing Online Shopping - 72 percent of shoppers intend to explore online channels for their holiday purchases. For these consumers, online shopping offers better value, competitive prices and deals
- Early Bird Shoppers - As a strategic move to maximise their Christmas budgets, 35 percent of holiday shoppers started their Christmas gift hunting as early as October, to take advantage of key shopping events like Black Friday and Cyber Monday
In response, retailers are ramping up Christmas promotions to capture early shoppers. The Australian Retailers Association (ARA) is also advocating for the deregulation of trading hours in Queensland, South Australia, and Western Australia. This move aims to provide retailers with more flexibility to operate during peak shopping periods, aligning with the 24-hour online retail economy. By doing so, the ARA hopes to enhance the competitiveness of physical stores, making them more adaptable to consumer preferences that increasingly lean towards the convenience of online shopping.
How to cut back on spending
While you might not want to cancel Christmas, there are ways to save money in the lead-up to make 2024 more affordable.
Create and stick to a budget
The cornerstone of financial management is creating a realistic budget and sticking to it. Start by tracking all your expenses, no matter how small. This will give you a clear picture of where your money is going. Use budgeting apps or simple spreadsheets to monitor and categorise spending. This will help you pinpoint areas where cutbacks can be made.
Prioritise needs over wants
Distinguish between essential needs and non-essential wants. Essentials include housing, food, healthcare, and transport. While non-essentials can range from dining out to luxury items and even subscription services.
Keep an eye out for sales discounts and compare prices before making purchases. But remember: sales are only good if you can afford them. Don’t fall for marketing tactics.
Another way to save is to buy in bulk for non-perishable and regularly used items. Opting for generic brands over name brands can also lead to substantial savings.
And avoid making impulsive purchases. If you come across something you want, wait a few days before buying it. Often, the urge to buy dissipates.
Trim utility bills
Implement small changes in your daily routine. Try turning off lights when not in use, using energy-efficient appliances, and reducing water consumption. These changes can help lower your utility bills. Explore different providers to secure better rates and plans.
Consolidate and negotiate debts
If you are burdened with multiple debts, especially high-interest ones like payday loans, consider consolidating them into a single loan with a lower interest rate. Negotiate with service providers for better rates or payment plans.
If you have a home loan, check your current rates and consider shopping for better deals. Engage with your bank or a mortgage broker to explore refinancing options.
Look for cheaper insurance
Consider adjusting your policies, including car insurance and health coverage, to ensure they align with your current needs. Consider opting for an agreed value policy for your car insurance to potentially reduce costs. You can also opt to increase the excess on your health insurance.
Embrace secondhand and DIY
Instead of buying new items, explore secondhand alternatives for clothing, furniture and electronics. Embracing DIY projects - if you happen to be handy, that is - can also reduce costs on services and products.
Use public transportation
With rising fuel prices, using public transportation or carpooling can significantly reduce travel costs. For shorter distances, walking or cycling offers a healthy and cost-free alternative.
How to manage the rising cost of living
If you find yourself grappling with financial hardship, one of the first steps you should consider is seeking financial counselling and assistance. Services like the National Debt Helpline offer confidential and professional financial advice. They can also assist with budgeting, debt management, and negotiations with creditors.
Another avenue to explore is available government support programs and grants. The Australian Government offers a range of initiatives that provide substantial assistance in areas such as housing, utilities, healthcare, and education. On November 1, the government started rolling out its $23 billion ‘cost-of-living relief’. This is aimed at helping with healthcare costs, energy bills and housing.
While it's natural to want to enjoy the festive season, it's crucial to avoid overspending and placing undue financial pressure on yourself. Make wise choices, and you’ll start the new year on much better financial footing. If you make a purchase that falls short of your expectations or doesn't meet the promised standards, please get in touch with us and we’ll help you handle it.