Our record savings cushion is drying up fast

Australian household savings rates have reached lows not seen for more than 15 years.

Australians built a huge savings war chest during COVID (lockdowns prevented us going out and spending) which has helped us fight inflation and rising mortgage repayments. We’ve dipped into our savings to cover the cost increases and still maintain our spending.

But those savings are drying up fast. In fact, savings have now reached lows not seen for more than 15 years.

According to Ray White chief economist Nerida Conisbee, we’re not yet spending more than we earn, as happened in the Global Financial Crisis. But one more interest rate rise, energy price rises continuing or even a slight rise in unemployment could tip us into negative territory.

Source: Ray White

High savings rates had a number of impacts on property, according to Nerida. Despite Australia seeing negative net migration overseas, rents grew rapidly, increasing by 13 per cent between March 2020 and December 2021.

Although difficult to explain at the time, it has since been shown that average household size declined during the time and the number of single person households hit a record high. Rental demand jumped as more people decided they liked living alone or in smaller households. This trend is now reversing as rents rise sharply.

It was also a major driver of house price growth. Higher savings rates meant more to spend on other things when restrictions began to ease and it became apparent that the pandemic would at some point end. Extremely low interest rates and lots of saved cash meant strong demand from buyers, pushing up prices across Australia.

The outlook for property

With savings rates now plummeting, what does this mean for property?

Interest rates remained on hold in August and markets are currently pricing in 93 per cent chance of another hold in September. With retail trade falling for the third straight quarter, savings rates plummeting and inflation trending down, Nerida thinks it is looking more like we are now at peak rates.

With more property coming onto the market, this greater certainty about the outlook is likely to make this a much better spring selling season than last year.

How to save your savings

To keep your savings in tact as the cost of living rises, you’ll either have to earn more or adjust your spending. For most of us, keeping a lid on expenses is a much less painful process than taking on overtime or getting a second job. Here are the steps you need to become a savvier saver.

1. Know what you’re saving for

What are you saving for? Is it for a home deposit, time off to have a baby, a new car, the kids’ education, a holiday or your retirement? Whatever your goal is, start working towards it today. Work out how much you’ll need to meet your savings goal and then do the maths backwards. What do you need to put away each week right now in order to achieve your future goal?

2. Keep it simple

You don’t need to overcomplicate your savings strategy. Work out what you can afford to put aside each month then keep it steady. Consistency is what will win you results over time.

3. Automate it

Take care of your savings first by automatically putting the amount you need to save into a separate account each month.

It’s easy to set up a system to move your money straight into your savings account on pay day. Schedule an automatic, reoccurring monthly transaction from your main account into your savings account and it’s done.

It’s called the ‘pay yourself first’ strategy and it basically means your savings are out of sight, out of mind.

4. Keep your savings separate

If you’re saving for something in particular, you don’t want to touch those savings for anything else. So build a separate fund that will take care of life’s little emergencies as they arise. That means, when the hot water system blows or your need new brakes on your car, you can use your emergency fund to fix things, not your savings.

5. Keep an eye on things

While you do want to make saving as automatic as you can, you’re not going to ‘set and forget’ forever. Make it a habit to regularly check the savings rate you’re getting compared to rates offered elsewhere. Then move your money to get a better rate whenever you need to. It might feel like a pain to do the paperwork every time you need, but that’s nothing compared to the pain of being out of pocket because you didn’t.

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