How To Survive 7% Interest Rates Episode 138

You might remember a time when interest rates were lower, and the economy seemed to be in a better place. But things change, and it’s essential to adapt. We’ve gone through tough times before, and you may have even listened to our episode on surviving a recession earlier this year. Today, we’ll focus on how to handle the situation when interest rates are on the rise.

The recent shift in government has brought about changes in the economic landscape, but that doesn’t necessarily mean it’s all smooth sailing from here. While some people may feel optimistic about the future, many still find themselves in a tight spot. High-interest rates and lingering inflation are making it challenging for many individuals and families to make ends meet.

If you’re one of those feeling the financial pinch, don’t worry; you’re not alone. We understand that financial stress can be overwhelming and lead to sleepless nights. The good news is, there are steps you can take to alleviate your worries and secure your financial future.

First and foremost, remember that you don’t have to face this situation alone. Talk to someone—a financial advisor, a mortgage broker, or a trusted friend. Keeping your concerns to yourself won’t solve the problem. Sharing your situation with someone knowledgeable can make a significant difference.

We want to illustrate this with an example. Consider a client we recently spoke to: a household with one income, three kids, and a mortgage of just over $1,000,000. Currently, they have a 3% interest rate, and their mortgage repayments are manageable. However, next year, their mortgage is set to roll over, and their monthly payments will increase to $7,700—a $2,700 monthly increase

Imagine being in their shoes, facing a daunting jump in your monthly expenses. It’s a challenging situation, and you might be feeling stressed just thinking about it. If you find yourself losing sleep over rising interest rates, you need a clear plan to address the issue.

Let’s break it down step by step. If you or someone you know is struggling with the prospect of higher interest rates, follow these guidelines:

Start by recognising your feelings and the reasons behind them. Writing down your thoughts can be a helpful exercise. Financial stress is real, and it’s crucial to address it head-on.

Assess your current financial situation by examining your expenses. Determine your fixed expenses, including bills and mortgage payments, to understand what’s essential. A budget can be a powerful tool to help you regain control of your finances.

In challenging times, reducing discretionary spending is essential. Prioritise your needs over wants and find areas where you can cut back. Every dollar saved counts.

If possible, explore opportunities to increase your household income. It might mean taking on a part-time job or finding creative ways to earn extra money. If you have extra space in your home, think about getting a boarder or a flatmate to help cover some expenses. If necessary, renting out your home while finding more affordable accommodation elsewhere could be an option.

Don’t hesitate to contact your bank or mortgage lender to discuss your situation. They may offer options like extending the loan term, switching to interest-only payments, or other solutions to temporarily ease your financial burden.

Consider reducing or pausing your KiwiSaver contributions temporarily to free up more cash for your immediate needs. Keep in mind that this should be a short-term measure.

Remember, you’re not alone in facing financial challenges. Don’t hesitate to seek advice and take action to secure your financial future. With the right plan in place, you can survive and thrive even in the face of 7% interest rates.