How global instability affects your finances

* Transcript created by AI – may contain errors or omissions from original podcast audio

 What effect does global instability and conflict have on your household? Finances. In today’s episode of the podcast, I’m gonna explain exactly what this means for your household and the questions that you need to be asking as a household right now?

Just a quick note before we dive in. Everything I share on this podcast is general in nature and does not take your personal circumstances into account. I’m not a licensed financial advisor, and nothing you hear on this podcast should be taken as personalised, financial, business, taxation or investment advice.

Before you make any financial decisions, please seek guidance from your accountant or a qualified licensed financial advisor who understands your specific situation.

I am sure you’ve seen there’s a lot happening globally. At the time of recording there is escalating conflict in the Middle East and many of us are hoping this is temporary, although who knows what lies ahead. But regardless, I thought it was a good time to have a wider discussion about what impact instability in its varying forms has on global markets and on your own household and financial situation.

And before we dive in, I wanna acknowledge something. There are people right now who are literally losing their lives, their homes, their livelihoods.

 People are being injured, displaced, traumatised. Families whose worlds are being turned upside down.

And money is not the most important thing. My heart genuinely goes out to anyone affected by global conflict at any time.

Today’s episode is gonna focus on the money side, the economic impact. Conflict and instability means for markets, mortgages, jobs, and households like yours. But I didn’t wanna speak about dollars and data without first acknowledging the very real human cost behind these current headlines.

This conversation is about understanding the financial ripple effects, not discounting the people at the center of it all.

First of all, it’s important to identify what’s actually controllable for an individual household, and the truth is for many of us, there’s not a lot we can individually do to stop global volatility and shift global markets. So as a general rule, I believe it’s great to be informed about what is going on, but also it’s really important to manage your own mindset as you are consuming news and online content.

Remember, influencers are trying to get views. The news is trying to get more people to watch it. So often new stories will be sensationalised, which can have a big impact on our nervous system. And we know that when our brain is stressed, it doesn’t make the smartest decisions. My brother is an investment banker and he works with a lot of the wealthiest people in Australia, and he said, people of all walks of life panic when they see markets falling and things moving really quickly, and they then make decisions when they are feeling stressed and scared rather than sticking to their long-term money strategies and plans.

So remember to emotionally regulate yourself as you are consuming content and educating yourself.

Okay, so let’s dive in to what usually happens to our financial markets during instability. So the primary thing that we see is the cost of commodities increase. Now you might wonder. What exactly are commodities? I hear that term on the news, but I don’t really know what it means. Commodities are raw materials, so think of it like the building blocks of our global economy.

Commodities includes things like oil, gas, coal, petrol. So think energy and remember that without which nothing moves. So boats, cars, logistics, transport. Moving products around. Next is food, so wheat, corn, et cetera, et cetera. And then we have things like industrial metals, copper, iron, ore, aluminum, lithium, which of course are used for things like building houses, batteries, and technology.

And the other thing that we see increasing is gold and silver in uncertain times. And they climb because they can be deemed to be more stable than fluctuating currencies. So people might often move their cash into gold or silver.

So why do these prices increase? Because when production and shipping gets disrupted, which happens during conflict.

There’s less oil, which means it’s harder to move things around from food to housing to clothing.

So if oil prices are higher, it’s going to cost more to get food to your local grocery store. And then of course what’s gonna happen is that they are then going to increase their prices to cover it, and boom, it hits you as a buyer. And when money is tight, we can cut back on luxury items. So things like buying designer clothes, getting your nails done.

There are some areas that are, areas that we can elect to cut back on, but we still have to eat. It’s a necessity of life and we likely still need transport. So what happens is all of these different costs are going up, and then when all of these consumer prices are increasing,

that is called inflation.

From a household perspective, when inflation is high, the government, which is the Reserve Bank of Australia here in Australia, puts up interest rates to slow down spending. So why would we put interest rates up to slow down spending? Because higher interest rates means that mortgages are more expensive, but savings accounts earn more interest.

So basically what they are trying to do is encourage people to save, spend less and borrow less. When interest rates are high, if you have a mortgage, you are paying more each month for your home, which means you have less money for other things. Wages also increase during these times. Because as all your household costs are going up, people will often go to their employer and say, Hey, my cost of living has increased.

I need more money. Can I get a pay rise? And so if the employer is paying people more money, what this ends up meaning is that they’re hiring less. They might even have recruitment freezes and even start laying off jobs to be able to cover their costs.

So global instability means that it can affect your grocery bill, your mortgage, and the job market.

The share market can fall, and likely the value of your superannuation will decline as well. So with all this in mind, when there is conflict, when there is instability. What can you be doing? So it’s worth reflecting on some questions that your household should be asking right now. How would these things affect our household?

So firstly, reflect on what impact increased cost of groceries would have on your household. Next, what effect would a decline? Your share portfolio, if you have one, and your superannuation have, obviously this will affect different people differently at different stages of life. So for example, if you were close to retirement, a crash, a share market crash could have a huge effect on you. Compared to if you are in your, twenties and you still have plenty of years left to grow wealth.

Next, have a think about what would increased interest rates, what effect would that have on you. Would it mean that you are earning more interest on your savings? Or would it mean that the cost of your mortgage is increasing? Do you have a big mortgage? How much savings do you have? How long could you get by on higher interest rates before you’d have to literally sell your home if you are unable to keep up with the repayments. It’s worth having a think about it. Next, stress test. Your income and have a think about your job security. So this is one of those things that we don’t like to think about, but it’s better to have done the thinking than not to have done the thinking. So an example for our household, my husband runs a recruitment firm, so his business is very subject to global instability or even perceived instability because as I said, one of the things that people stop doing is they stop hiring.

Although he is a little bit of an advantage because his industry is a relatively buoyant one, still definitely gets affected, but it’s it not completely decimated. So it’s worth having a bit of a think about your current employment and how volatile it is. For example, are you selling luxury goods or do you work in healthcare, something that’s gonna be needed all the time.

And depending on the volatility in the kind of work that you have individually or that you have in your household,

you can make sure you have a bit of a buffer or game plan around what that looks like.

So today was really about setting the scene about what happens when there is global instability, and helping you have a bit of an understanding around what’s happening at a macro level.

In next week’s episode, I’m gonna share how you can actually set your finances up to be a calm money manager no matter what is happening in the global markets. So make sure that you tune in for next week’s episode as well. And don’t forget whether you’re a business owner or managing your household finances.

If you do need help with your money, please reach out and I can share how I can support you. Feel free to send me an email direct. My email is Clare clare@clarewood.com. Thanks so much for tuning in. If you think this episode might be helpful to someone, please make sure you forward it onto them, and make sure that you tune in for next week’s episode about being a Calm money manager.

* Transcript created by AI – may contain errors or omissions from original podcas