Take control of your finances while inflation stays high

Consumers are urged to take control of their finances while inflation stays high, as they must factor this constant increase in the price of goods into their long-term financial and retirement plans to safeguard their financial future during retirement.

South Africa continues to face stubbornly high inflation rates and research conducted by Old Mutual shows that few families are aware of how persistently high inflation gradually erodes the value of accumulated retirement funds over time, warns Marius Pretorius, head of marketing for retail savings solutions at Old Mutual.

High inflation vs retirement funds

Old Mutual’s 2022 research recorded eight South African families from a cross-section of society who were asked to fill a shopping trolley with all the groceries they needed in a month.

They did not know that it was a simulation of what their shopping trolley would look like when they retired and that prices and incomes were adjusted to what they would be when the breadwinner retired.

Some families were over budget between 100% and 800%. Pretorius says the research showed how the high cost of food impacts families’ finances.

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Price increases and inflation

“One of the significant contributors to the overall inflation rate in South Africa has been the substantial increases in the prices of food and non-alcoholic drinks,” Pretorius says.

“According to Stats SA our struggle with inflation has been exacerbated by a 14.0% surge in food and non-alcoholic beverage prices in the year to March, accounting for a significant 2.4% points contribution to the overall inflation rate.”

Pretorius explains that inflation impact is indiscriminate, gradually eroding the value of accumulated retirement funds over time.

“It poses a significant threat to the value of money saved for retirement. Failing to save adequately can leave many individuals without sufficient funds to sustain themselves during their post-work years.”

Inflation stems from external pressures

He points out that there are little individuals can do about inflation.

It comes from various external pressures, influenced by factors such as the energy crisis, fuel prices, geopolitical tensions like the war in Ukraine, exchange rates and natural disasters, all of which caused the cost of manufacturing and production to surge.

“This surge in the cost of energy, food and transport generally highlights the need for consumers to adapt their financial strategies to mitigate the effects of inflation on their retirement savings. Consequently, it becomes imperative for individuals to incorporate inflation into their long-term financial and retirement plans to safeguard their financial future during retirement.”

Inflation has far-reaching consequences for retirement planning. As the buying power of the South African household diminishes, individuals must recognise the importance of proper financial planning for the future.

ALSO READ: Inflation at 13-month low in May

What you can do about inflation challenges

Is there nothing consumers can do?

“To overcome the challenges posed by inflation, individuals need to make significant behavioural changes in their financial habits. While half of South Africans lack a retirement plan and only 6% can retire comfortably, according to National Treasury, prioritising saving is within their control.”

Pretorius says individuals can significantly reduce expenditure by adopting budgeting techniques, focusing on needs over wants and making intelligent choices in everyday expenses.  

He proposes various cost-saving strategies, such as switching to affordable brands, meal planning, using shopping lists and reducing takeaways and restaurant visits, which can result in significant savings.

Old Mutual has a “pay yourself first” tool available that advisers use to help consumers estimate how much they can save by changing their behaviour.

In addition, adopting energy-saving practices can help.

Pretorius says you can save a lot by unplugging “vampire appliances”, known for consuming power even when “turned off” and lowering the geyser temperature, to avoid inflated electricity bills.

You can also use fuel-efficient driving habits, regular vehicle maintenance and sticking to the speed limit to reduce fuel consumption and related expenses.

“Saving for retirement is not a case of ‘one size fits all’. Considering your unique circumstances, reducing your expenses and getting the appropriate advice from a qualified financial adviser will help you to manage the day-to-day finances and obtain a financially secure retirement.”