The downturn in Australian housing has given people plenty of reason to worry. But is the situation as bad as many make it out to be? Well, the latest figures from the Australian Bureau of Statistics don’t give us much to be optimistic about.
Property prices across Australia decreased 5.1% through last year, making the current slump the biggest since the GFC. The country’s two major capital cities saw the steepest declines. Melbourne’s property price index decreased by 6.4% in the past year - its sharpest drop on record - while Sydney’s registered an even greater drop of 7.8%.
Right now, some are saying another crash is around the corner. Cost of living has risen while wages have remained relatively flat. And with the country’s household debt-to-GDP ratio reaching 121%, Australia is looking pretty vulnerable.
Others are suggesting the economy is more than strong enough to handle an upcoming crisis, with any potential plunge likely to be cushioned by the period of immense growth that preceded it. After all, housing prices might have dropped substantially in the past year, but they were on the rise for much longer than that.
Whatever the case, it pays to be prepared. So what can the average Australian do to make sure they don’t find themselves overwhelmed by a sudden economic downturn? Here are a few things to think about.
1. Pay down your debts
If you’ve got debts, paying them off should be your first priority, particularly the ones with higher interest. Having all your money tied up in debt means constantly worrying about meeting monthly repayments, instead of spending or saving it as you wish.
Having lots of debt hanging over you can also wreak havoc on your mental health. One US study found that adults aged 24 to 32 who had large amounts of debt reported 11.7% higher levels of stress and 13.2% higher levels of depressive symptoms than their non-indebted peers.
If you’re struggling with multiple repayments on credit cards or personal loans, consider a debt consolidation loan. Or if you’re paying off a home loan, make use of features like an offset account and free extra repayments to pay down your debt quicker.
2. Simplify your lifestyle
We’re not suggesting you start separating your tissue plies or watering down your milk, but there are plenty of little changes you can make that will make a big difference to your financial health.
For example, cutting out non-essential items can go a long way towards growing your savings. Ask yourself if you really need that daily $5 coffee. If you’re willing to give it a miss you could save more than $1,800 a year. And if you order takeout multiple times a week, you stand to save even more by whipping up a homemade dish instead.
Using a budget is one way to help put things in perspective. Over here we’re pretty evangelical about budgeting, and readers will be glad to know there’s no shortage of apps out there that make it simple, if not completely automatic. Having your monthly expenses clearly laid out in front of you can help to identify poor spending habits and put you on the path to correcting them.
3. Make sure you have an emergency fund
It pays to have an emergency fund to help you ride out periods of uncertainty in life, whether that’s an economic crisis or an unexpected vet bill. Ideally, you’d want at least three months’ worth of expenses saved up.
Having this kind of safety net in place is crucial, because often the alternative is relying on credit sources, like credit cards or personal loans, and if you’re already in a precarious financial position this is likely to make matters worse.
4. Work on building your skillset
In such a fast-paced economy, it pays to be adaptable. If your current employer offers opportunities to upskill, be sure to take them. If there’s a particular skill you’ve been meaning to learn - coding, marketing, social media strategy, whatever - round up all the books and free online courses you can find and get studying.
The greater your skillset, the less likely you are to be made redundant. And even if you do find yourself without work, you’ll be in a better position to find another job if you can show employers you possess a diverse range of skills that are desirable on the market.
So if you want to make sure you’re prepared for the worst, a good place to start is by making sure your debt is under control. Check out our debt consolidation loan page for an idea of what’s available to you.
And if your current mortgage brings you nothing but despair, think about switching to a better value deal. You could save tens of thousands of dollars by switching to an online lender. Better that money goes to you than in the big banks’ pockets.