MANY consumers are still working out the implications of the unexpected rate hike and the latest fuel price increase, which has pushed the cost of petrol to a high of just under R14 per litre for the first time.
Some of us wryly refer to “Jan-u-worry” as the leanest month, but with two unpleasant surprises only a week apart, quite a few South Africans will really struggle financially. Plus, the first interest rate increase in nearly six years could be the first in a series of increases.
Many with housing bonds, hire purchase loans and long and short term loans will be wincing as they realise they owe their creditors quite a bit more than they did a few weeks ago.
Time to review your situation
John Manyike, head of financial education at Old Mutual, said that while the increase of 50 basis points came largely as a surprise, South Africans can use this as an opportunity to review their financial plans and build wealth.
“Many motorists already do all they can to limit their driving and keep their fuel bills as low as they can.
“And, while South Africans like to put on a brave face, a lot of us find the beginning of the year difficult financially,” he said.
He explains that there’s the temptation to spend more than usual over the festive season, so the interest rate hike and the fuel-price increase may feel like a double whammy.
“This is especially true when the weak Rand is driving a series of fuel-price increases, which drive up the cost of everything else, but it also provides a reminder not to try to ‘go it alone’ when it comes to money,” he added.
Changes in the financial environment illustrate the importance of getting good advice.
If you’ve retired and have some capital, the rate hike means you’ll receive more interest on which to live, which is handy, because the cost of living will follow suit and increase as well.
Get financial advice
An accredited financial adviser can help you review your monthly budget and identify things you can do without. You could consider lift clubs or public transport if you drive to work.
Make adjustments on your spending habits; for example, take a lunch box to work instead of buying takeaways. You will be surprised how much you can save this way, and you can use this money to reduce your debt faster by paying extra.
This could even close the gap caused by the interest rate hike. Even if the rate goes down, don’t reduce your monthly repayments.
“Plan to get rid of short term debt; start saving and pay extra into your home bond, if you have one.
“The longer you’re in short-term debt, the longer you’re paying interest to someone else, either the bank, or a clothing chain or a short term lender,” Manyike said.
The increase in interest rates means you’ll pay even more.
He said it’s worth sucking up the short term pain to free you of short term debt. “For many of us that involve doing without nice-to-haves for a while,” he added.
Commit to saving
A key to building personal wealth in general is to adopt the basic principles of saving money before you spend it.
“Save first and spend the rest, rather than spend first and save the rest,” Manyike said.
Watch out for store-cards with introductory vouchers worth hundreds of rands. The interest on such accounts is always expensive.
Online shopping can also lead to trouble; if you’re trying to get out of debt ask yourself hard questions before you buy: Do you really need an item or would that money be better spent on nibbling away your credit card debt? Just because a bargain is available doesn’t mean you have to buy it.
“A far more basic step, though, is simply to know how much you earn and what it’s spent on. Establishing that already puts you in a better position than many South Africans, including those who earn more than you, but are still always short of money,” Manyike said.
– Arrange automatic deductions from your wages or salary so that you’re committed to saving every month, even if it’s only a small amount.
– Set tangible, realistic goals for what you want your money to achieve.
– Stay in control. Identify the biggest threats to building wealth (like your credit card or a loan that carries lots of interest) and prioritise eliminating them.
– Unleash the power of interest through patience.
