Stagflation is when a country’s growth stalls, but inflation keeps rising. Often, unemployment increases, too.
Australia, anyone?
It’s the economic equivalent of running on a treadmill that’s getting faster, while you’re getting tired.
As we know, only weirdos think running on a treadmill is a good idea. Let alone jumping on one that gets harder as you get weaker.
I suspect we’re going to hear the word “stagflation” a lot more in Australia.
But, to be clear: Australia isn’t necessarily experiencing stagflation today.
Unfortunately, with productivity struggling, government debt mounting, serious concerns about taxes and our political leadership, AI threatening jobs and inflation going higher, I understand why people are starting to worry we might see stagflation in Australia.
The RBA now expects inflation to remain above 3% until late 2027, even as economic growth slows. Right now, annual inflation is grinding higher, at 4.3%, while growth in our wages are under pressure (currently 3.2%).
Translation: households are already feeling like a treadmill that’s getting harder and harder.
But here’s the rub: as long as inflation remains above the upper range of 3%, your interest rates almost certainly won’t come back down.
As someone with a ‘generous’ mortgage, I worry about these things too.
But over the years that I’ve studied financial decision making, business, investing and economics, I’ve learned to separate the world into three simple categories:
- Things I can’t control: the Government rapidly increasing taxes, immigration and their big spending; inflation; the RBA and my bank’s interest rates; AI disruption, and daily share prices.
- Things I can influence: My earning potential, skills I develop in an AI era, career opportunities, business outcomes and the people around me.
- Things I can control: My spending, savings rate, debt levels, my portfolio and investment decisions and, most importantly, my behaviour.
The distinction matters more than you think. Because while we can’t control the direction of the Australian economy, we can do a lot to improve our financial futures regardless of the economic cycle. And we should start – now.
My philosophy is simple: save like a pessimist, invest like an optimist.
Here’s how it works…
Saving like a pessimist
I don’t mean buying a shotgun, going bush and living on baked beans. Or simply becoming so miserable with money you deny yourself every item. That’s like people who “go on a diet”.
(Shocker: it doesn’t work.)
So I mean the opposite: preparing for an imperfect world.
Build an emergency cash buffer to a good level. Reduce or consolidate ugly debts. Create breathing room in your household budget.
And most importantly, reprioritise your spending around the essentials and things that genuinely bring you joy.
Like people who are “on a diet”, anyone with a healthy and sustainable lifestyle knows the importance of finding balance.
A budget detox might be okay for 30 days, but it’s never sustainable. That’s why most of us need feedback loops as fuel for further motivation.
So how do you do it?
I believe most budgets can be divided into three things:
1) essentials
2) things you love, and
3) everything else.
Protect the first.
Enjoy the second.
Question the third.
Maybe you love travelling, spending time with your kids or eating out with friends. Great! Keep doing those things.
But that OnlyFans subscription you forgot about? The few extra beers on the weekend? The bogan-floater (jetski) nobody cares about?
That’s where I’d start.
Last weekend, in my passive income playbook, I explained how saving is like packing a snowball before rolling it down a hill.
The goal isn’t to accumulate money for the sake of it. It’s to form good habits quickly, set a plan in place, and let it roll.
Investing like an optimist
Here’s the beautiful thing about long-term investing: you don’t need Australia to have perfect politicians, inflation to disappear or every company to succeed.
As Buffett taught us, the stock market isn’t the economy.
To be a successful investor who builds serious wealth, all you need are productive businesses that create value for customers. That in turn means growing profits and rewarding their owners over time.
That’s the foundation of my investment philosophy.
Of course, markets will fall.
I’ve shown through 100+ years of data that in 80% of the years, stockmarkets are positive. Just 20% (1-in-5) are negative.
In simple terms: the longer you go without investing, the higher your chance of being a long-term loser.
Super balances should also fall. Because it proves the fund is investing honestly.
Recessions happen. That’s normal. Australia broke world records by going recession-free from 1991 to 2020. That’s not normal. Expect one in 10 years.
Some businesses fail. More businesses are failing now because of the increased political uncertainty, weak economy and forced changes to Super, taxes, HR laws and AI.
Speaking of, AI will create winners and losers. Yes, this week’s stock market returns are scary. Most of the hit landed on AI stocks. But they’re still up massively in 2026.
Bottom line: throughout history, it’s the patient, diversified investors who have benefitted from innovation, productivity improvements and the compounding of business profits.
For Australian investors, this should mean diversifying, keeping fees low and investing regularly, without pretending we can predict the next market correction or recession.
Keeping your head
Being an optimist doesn’t mean ignoring problems.
It means believing that things can be bad today and still get better tomorrow.
That’s the difference between being optimistic and being naive.
So before you get hung up on the latest news headlines, get a blister from fingering too many Facebook videos, or overwhelmed by technological change – step back.
Focus on what you can control, then what you can influence. And, sure, it’s ok to be aware of the stuff you can’t control (like our politicians or the economy), but spend as little time on it as you can.
And if you feel like you can’t invest optimistically, I’d love to do it for you. Or you can reach out to us for financial advice.
- Onward & upward
