Rising interest rates: Why financial advice matters

As we enter 2026, the economic news is a tale of two sides. On one hand, there’s good news that gives reason for optimism:

• Business confidence is up: Australian business activity picked up in late 2025. The NAB survey showed business conditions improving and confidence edging up to +3 (from +2) – not spectacular, but a sign of resilience. This uptick, alongside strong sales and profits, hints that companies are cautiously optimistic about the near future.
• Global growth signals: Major economies are holding up better than expected. In the United States, for example, business investment jumped as new orders for durable goods rebounded 5.3% in one month after a previous dip. The U.S. job market has also remained solid, which is a great indicator of economic strength; after all, people with jobs tend to spend money, supporting growth.
• In China, a key trading partner for Australia, manufacturing activity expanded again in December (for the first time in eight months). Beijing has even pledged more pro-growth policies for 2026, helping markets believe Chinese growth may have found a floor rather than continue to decline.

These are positive trends; however, the global economy is navigating challenges without veering into a worst-case scenario. This is good news for Australians: a stable global backdrop supports our exporters, job market, and investments.

On the other hand, there are still challenges and uncertainties we can’t ignore:

• Inflation is sticking around: Price pressures have proven stubborn. Australian inflation recently surprised to the upside, prompting the RBA to hike the cash rate to 3.85%. While inflation had eased from its 2022 peak, it began climbing again in late 2025, and the RBA now expects it to be around 4.2% by mid-2026 (well above the 2–3% target). This is a double-edged sword for households: not only are everyday goods and services more expensive, but borrowing costs, such as mortgage rates. are also rising.
• Interest rate pain for households: Each RBA rate rise flows through to higher loan and mortgage repayments. For example, that 0.25% hike might sound small, but on a typical home loan, it adds perhaps $50–$100 to the monthly payment. Nearly one in four mortgage holders was already considered “at risk” of mortgage stress at the end of 2025. Many people and families are feeling the squeeze on their budgets.
• Global headwinds: Inflation isn’t just an Australian problem. The UK saw shop prices jump more than expected in late 2025, and parts of Europe are struggling. Germany’s manufacturing sector ended 2025 back in contraction. Elsewhere, Japan is grappling with above-target inflation, and even China’s huge services sector recently hit a soft patch.

All these factors keep financial markets on edge. They also mean central banks, including our RBA, might keep interest rates higher for longer to combat inflation, rather than giving borrowers relief.

In practical terms, it calls for a balanced and practical approach to your finances

• Budget and debt management: With interest rates rising, now is the time to review your household budget. Prioritise essentials and look for areas to trim discretionary spending if needed. As mortgage and loan repayments increase, consider strategies to manage debt, such as shopping around for a better rate, refinancing, or making extra payments to reduce principal, if possible. Every dollar of debt you pay down works harder for you when rates are high.
• Build an emergency buffer: Economic uncertainty and higher living costs make an emergency fund more critical. Setting aside 3–6 months’ worth of expenses in a savings account or offset account can provide a safety net if you face job instability or unexpected bills.
• Adjust and diversify investments: If you have investments or superannuation, ensure your asset allocation is diversified and aligns with your risk tolerance. Markets are expected to be volatile in the short term; one month might bring a rally, while another might bring a pullback. A well-diversified portfolio can help cushion against shocks.
• Don’t neglect retirement savings: Perhaps the hardest thing during a cost-of-living crunch is to keep saving for the future. When budgets tighten, people often cut their retirement contributions or dip into savings. Try to avoid putting your retirement on the back burner. Australia’s superannuation system means most workers are already saving through employer contributions, but consider topping up your super if you can, especially if you aren’t hitting the contribution caps or if your employer offers matching.

It can be complicated, and it is quite normal not to be strategically money-wise. The economic environment we’re in rising rates, sticky inflation, and global uncertainty, can feel overwhelming for anyone, and the “best” moves aren’t always obvious. This is where a qualified financial advisor proves their worth as a valuable asset for everyday Australians.
An AFPG advisor offers the following:

• Personalised strategy: Our advisors will look at your whole financial picture; income, expenses, debts, family situation, goals, and help create a tailored plan. With an expert eye, they can identify opportunities you might miss, such as restructuring loans or optimising your super contributions. They take into account things like government benefits, tax implications, and investment options to craft a strategy that keeps you on track even as conditions change.
• Adjusting to interest rate changes: When interest rates move, an advisor can guide you on practical steps. For instance, they might suggest switching to a fixed-rate mortgage for stability or making extra repayments on variable loans to blunt the impact of future rate increases. They can also advise on managing other debts, like credit cards or personal loans, perhaps consolidating them or prioritising higher-interest debt for repayment. The goal is to minimise interest costs and free up cash flow.
• Keeping you invested wisely: In volatile markets, it’s tempting to either pull money out in panic or “wait on the sidelines.” A financial advisor provides perspective and discipline. Advisors ensure your investments remain diversified and aligned with your risk tolerance, so you’re positioned to benefit when markets recover, while also being buffered if another shock hits.
• Protecting your future: Crucially, an advisor helps you balance today’s needs with tomorrow’s goals. They can assess whether you’re on track for retirement and, if not, suggest adjustments such as increasing super contributions, diversifying your investments, or delaying retirement by a year or two, if feasible. They can also help with insurance and estate planning, making sure you and your family are protected against unforeseen events.Money matters can be stressful, especially when costs are rising. A financial advisor acts as a sounding board and coach. We provide reassurance backed by expertise. Simply having a plan and someone to call with questions can bring peace of mind that is hard to put a price on.

There are a lot of reports about the economy, and it’s easy to feel a bit uneasy about money. However, the key message is not to panic but to plan. Yes, interest rates are higher, and inflation is challenging, but with prudent management, you can navigate this environment.

The Australian economy is still growing, albeit modestly, unemployment remains relatively low, and there are opportunities out there alongside the risks. By staying informed and making thoughtful adjustments, you can protect your financial health and even prosper.

If you’re unsure about what steps to take, don’t hesitate to seek professional advice. A conversation with a financial advisor could be one of the best investments in your future you make this year. Remember, you don’t have to weather the storm alone; with the right advice, you can step up and make the most of your money today and for the years to come.

AFPG has the expertise to guide you in wealth accumulation and protection. We’ve helped hundreds of Australians, singles, couples and families make informed decisions that enable them to live a lifestyle of their choosing.

Contact us today for experienced, compassionate, and professional financial advice.