How to reduce expenses after a job loss and get back in the driver’s seat of your finances.
With many thousands of Australians experiencing job losses and reduced hours as a result of the COVID-19 (coronavirus) pandemic1, many will need to take a look at their expenses to continue living within their means.
The average Australian household spends almost $75,000 each year on living expenses, excluding major expenses such as rent or insurance. That adds up to between $1,100 and $1,700 per household each week that’s spent on personal care, pampering our pets, transport, alcohol, fashion and more2.
The good news is that there are some simple ways to cut back on these expenses. Whether you need to slash your costs significantly or simply tighten up your spending after a job loss, here’s where to start.
Know where you’re spending money
The first step is to evaluate where your finances stand today. If you already have a working budget, use it as a starting point, but expect that you may need to make some adjustments if your financial circumstances have changed. Itemise your monthly expenses as much as possible and separate out essential needs like housing, food and utilities, versus “wants” like entertainment, takeaway meals or online shopping. This will help you to see where you can realistically cut back, find cheaper alternatives and help save extra money.
Cut back housing expenses
When you need to make immediate changes to your budget, starting with the largest targets can have a big impact. For many of us, this means housing costs – either a mortgage or rental payments, as approximately 20% of Australians’ gross household income is spent on housing3. If you’re paying off your home, many banks are offering “mortgage holidays” to clients experiencing financial challenges. For eligible clients, AMP may pause home loan repayments for three months, with the option to extend for a further three.
If you’re ahead on your repayments, there may be other options, including reducing repayments or using your offset or redraw facilities to get access to additional money. You might also consider temporarily switching from a principal-and-interest mortgage, to one that’s interest-only. Paying off only the interest will instantly reduce your repayment amount. However, it may also take you longer to pay off the mortgage as a whole. Speak to your financial adviser or lender to discuss which options are right for your circumstances.
If you rent and have been impacted financially you may seek a rental reduction. The Australian government has agreed to a six-month moratorium on at least some evictions4. The Tenants’ Union is posting up-to-date information about landlord obligations during this crisis, as well as pointers for how to negotiate with your landlord.
Save money on your phone and internet
Next, cast a ruthless eye over regular utilities like phone and internet bills. Many telco companies make it easy to bundle all your devices into a single plan, which can work out cheaper in the long run. If you and your family have separate mobile and data plans with different providers, look at whether consolidating them can help you save.
On the other hand, you might find you’re still paying for old devices that are attached to a bundled plan. Take a close look at all your plan inclusions and get rid of any phones or tablets that are sitting unused in a drawer. You may also discover that you can get by with less data on certain devices, because you’re using them through your home network rather than being out and about. If you’re out of contract, talk to your telco about how much you can save by cutting back on your wireless data.
Trim the costs on food
Until recently, Australians were spending around $11.7 billion a year at restaurants and $10.6 billion on takeaways5. While you’re probably not eating out right now, takeaway food can still make a hole in your budget, so use the extra time at home as an opportunity to get into the kitchen.
Take a savvy approach to home cooking by adding more vegetables and legumes to your diet, and staying away from expensive cuts of meat. Avoid shopping at the grocery store when you’re hungry, buy home-brand products where possible and always take a shopping list. Try cooking bigger batches of food so you have enough for a couple of meals, without doubling the cost (and always eat the leftovers). Be mindful of waste at home, the average Australian household throws away almost 300kg of food per person each year6.
Find value in your lifestyle
Now is an opportunity to consider what you value most. By looking closely at your current spending, you’ll probably find ongoing monthly payments for expenses that are really not important to your household: music lessons for a child who hates the instrument; subscriptions to publications no one’s regularly reading; apps and software that are on auto-renew payment.
More than 14.5 million Australians – that’s over half of us – have at least one pay TV subscription in their home7. If you still keep returning to free-to-air, it’s time to reassess. Cutting out things you don’t use or value is painless and gives you extra money that you can better use elsewhere.
There will also be areas where you can get the same value for less money. You hold a gym membership to be healthy, but while they’re no-go zones, freeze your membership payments and look for inexpensive or free at-home workouts instead. The same applies to beauty treatments like hair colouring and manicures, which can be done at home.
Forego any guilty pleasures
In tough times, it can be tempting to find solace in an occasional treat or guilty pleasure. But when you look at the expense, those seemingly cheap thrills could be costing you a lot of money. For example, Australians spend $14.9 billion each year on alcohol8 and $21.5 billion on clothing and shoes9.
Be honest about where you’re most likely to splurge and remove any triggers like email newsletters (hit unsubscribe) or social media (unfollow those too-tempting accounts). Go to Smart Recovery Australia if you need help or suspect your spending reflects an addiction.
When you need help
Sometimes simply cutting back isn’t enough. The Australian government is continuing to announce new support packages, payments and subsidies including unemployment benefits for employees, casual staff, sole traders, families and more.
Try to remember that these challenging times will pass. In the meantime, there are many strategies and supports available.
If you want to understand more about the impact of COVID-19 on your finances and the investment markets visit our dedicated COVID-19 help hub. You could also register for one of the webinars AMP is running to keep you up to date.
1 ABC News: Coronavirus Saw Thousands of Australians Lose Their Jobs This Week
2 Moneysmart (2016): Australian Spending Habits
3 Australian Bureau of Statistics: Housing Affordability
4 Tenants’ Union of NSW: Renting & Coronavirus: What You Need to Know
5 Mozo (2017): Cost of Lifestyle – Key Findings Report
6 Foodbank: Food Waste Facts
7 Roy Morgan: 14.5 Million Australians Already Have Pay TV
8 Moneysmart (2016): Australian Spending Habits
9 Mozo (2017): Cost of Lifestyle – Key Findings Report
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