The real-life financial horror story

Johann Rossouw | 26 September 2022

Johann is an Associate Financial Planner at Fiscal Private Client Services. He holds the Certified Financial  Planner® accreditation and has a keen interest in personal finance and how financial markets affect our everyday lives.

Michael Myers. It. Freddy Krueger. These are all horror movie villains that have given many people sleepless nights.

Recently, a much more sinister and dangerous villain has reared its head. And, unlike the characters mentioned previously, this villain is real and poses a serious threat to your wealth and wellbeing. This villain is called Inflation.

Inflation is the term given to the general increase in the price of everyday goods and services, and the fall in the purchasing power of your money.

To illustrate this, assume you have R1000 in your bank account. You use this R1000 to buy yourself four shirts, costing R250 each.

Now assume that inflation is 6% a year. In 10 years’, time, the price of a shirt will be R447. The same R1 000 you have in your bank account will only buy you two shirts, instead of the four shirts you were able to buy 10 years ago.

Inflation does not only affect the price of the clothes on your back – it impacts everything from the food on your table to the fuel you put in your car. Inflation is a silent killer that destroys wealth. Inflation is not classist – it affects everyone.

Below are five tips you can implement to help you combat this super villain:

Know what you are spending

Have you ever woken up with the realisation that there is too much month left at the end of your money? A budget is the simplest way to avoid this sinking feeling and the starting point of any good financial plan.

This may not be the most exciting piece of advice, but it is critical to monitor your bank account to know where your money is going. Read more: Why budgeting doesn’t have to be a bad word and try our Budget Planner.

This does not need to take up hours of your day. With online banking, you can immediately see where your money was spent. Some banking apps even automatically categorise your spending for you.

If you spend five minutes once a week on budgeting, you will already have a much clearer picture of what you spend and where your money goes - this leads me to tip number two.

Cut down on unnecessary spending

Once you have a budget in place and you know where your money is being spent, you need to identify unnecessary expenses that you aren’t necessarily benefitting from.

Are you paying money for a streaming service, but you rarely use it? Cancel your subscription as soon as possible, before you pay for another month’s installment.

Insurance premiums becoming too expensive? Shop around for cost-friendly alternatives, but make sure you compare apples with apples.

If a cup of coffee from your favourite coffee shop gives you some much needed pep in your step and makes you happy, do not eliminate take-out coffee completely.

Rather focus on expenses that add no joy or utility to your life and try to reduce or eliminate these expenses as far as possible. 

Be conscious of what you spend, and if you have to compromise your lifestyle to get out of debt, it is a good idea. It won’t be long until you have extra disposable income again. This leads me to tip number three:

Avoid debt as far as possible

We are in a scary environment where interest rates are rising, and this means that the cost of servicing your debt will also be increasing. If at all possible, try to avoid store cards, credit cards and personal loans from banking institutions where interest rates can easily be 15% and above. Read more: What does credit cost?

If you already have some debt, make sure to continue paying the minimum monthly repayment. If possible, use any surplus money – even if it is only R100 per month, towards paying the debt with the highest interest rate. Test our Debt Repayment Calculator

Start a side-hustle

While cutting back on expenses is necessary, there is no substitute for extra income. A side-hustle is a source of income outside of your main job.

Examples of a side-hustle, where you are putting your passions to work, include anything from photographing weddings, or providing extra maths lesson for schoolkids, to walking dogs in your neighbourhood or doing art commissions.

Even consider starting an online store selling your pre-loved clothes, music, art, and furniture. Another clever idea is buying and selling sneakers to collectors. Whatever it is that you enjoy, use this niche and try to earn some extra moola on the side.

Invest smartly for the long-term

If you are debt-free, have an emergency fund in place, and are in the lucky position to have extra money available, start thinking about the long-term. Inflation is an ever-lurking danger. Read more: How do I set up an emergency fund?

The only way to create wealth over the long-term is for your savings to comfortably beat inflation.

Over time, shares (also known as equities) and listed property have been the asset classes that have scared off the villainous Inflation.  Read more: Why must my investment beat inflation?

If you need help putting together an investment portfolio that can beat inflation over the long-term, find a good financial adviser, ideally one who holds the Certified Financial Planner accreditation. Read more: How can I find a good financial adviser?