There is no doubt that 2016 is going to be tough on households financially as price increases across the board push up our day-to-day living expenses. At the same time it is unlikely that we will see salary increases keeping up with our rising bills, as companies also face economic pressure with the economy expected to grow at less than 1% this year.
While there may be an overwhelming desire to stick our heads in the sand and hope for the best by living off our credit cards, that is not a survival strategy. It is the fastest way to a financial crisis. It is time to take a cold, hard look at our household finances and make some adjustments.
Budget, budget, budget
Write down everything you are spending. I promise you will be surprised at the unconscious spending that is really happening and where you can save several hundreds – if not thousands – of rands a month.
Stress test you budget
Last month petrol went up by 88c per litre. On a 50-litre tank, that will cost you an extra R44 to fill up (although to put it in perspective ,the petrol price is still nearly R2 less than the peak petrol price in April 2014). The recovery in the rand in the last few weeks protected us from a further 10c-per-litre increase but any further weakness in the rand means we need to prepare for future petrol price hikes along with at least 10% increases in the cost of food and electricity.
Once you have a proper budget written up, add 10% to all your essential bills like groceries, electricity and petrol and see if you can absorb these costs and what you need to be cutting back on now in order to survive the year.
Bullet-proof your mortgage
Since July 2014 the interest rate has increased by 150 basis points, which translates to an increase in mortgage repayments of around 15%. Economists are predicting another increase of between 50 and 100 basis points by the end of 2016.
The rate hikes are coming, so you may as well adjust your budget now by increasing the repayments on your prime-linked debt (usually mortgage and car finance) immediately. Those extra payments will help reduce your debt and also prepare you for those higher payments.
Go on a spending diet
Make a commitment to stop all impulse spending or purchasing of non-essential items for at least the next three months.
The best way to achieve this is to leave all credit cards and store cards locked away at home when you go shopping. It also helps to remember that when you buy items “on sale” that is not saving money – you are still spending, so don’t be tempted.
Also do not give in to the temptation to increase your credit limits – start by cutting back on your spending.
Work those loyalty points
Between the loyalty rewards programmes offered by banks, insurers and retail stores, most consumers belong to some form of loyalty programme. It’s worth spending the time to find out what benefits you can utilise to get through the rest of the month. Fuel rewards are especially useful as the fuel price rises.
Review those monthly bills
When was the last time you reviewed your short-term insurance policies or your bank fees? It is a competitive environment out there, and given the cost of client acquisition, many insurance companies are prepared to lower their annual increase should you ask. Bank fees, gym fees, and other subscriptions should all be reviewed as part of a budget-tightening exercise.
This article first appeared in City Press.