When costs keep rising

Gugu Sidaki | 02 June 2023

Gugu Sidaki is an independent financial planner and co-founder of the financial planning and wealth management practice Wealth Creed. She holds the Certified Financial Planner accreditation and is an author and financial literacy enthusiast.

The recent interest rate hikes on top of higher inflation rates have left many South Africans feeling the pinch and struggling to make ends meet.

The impact on household budgets is significant and many people don’t appreciate how important it is to plug the widening gap between their income and expenses.

Take the interest rates, for example. If you had a bond of R1.3 million in May 2020 at prime less 1% (6.25%), your monthly repayments would have been R9 884 a month.

Just two years later, your interest rate would have increased by one percentage point to 7.25% and with that your repayments would have risen nearly R1 000 a month to R10 747 a month.

With the latest hike, your interest rate is now 10.75% and your repayments are R13 809 – almost R4 000 a month more than in May 2020, representing a 39% increase over three years.

It gets worse

To make matters worse, economists predict that there will be more hikes to contend with this year.

Compounding that, unemployment is at its highest. Family responsibility is an unavoidable reality for many, and staying afloat while supporting family members seems a near-impossible task, especially since salaries have not increased in tandem, if at all.

What to do?

So what do we do?

You cannot budget your way out of being poorly paid and you most certainly cannot budget your way out of poverty.

But if you are fortunate enough to earn a living wage in these difficult times, you can continuously make some really difficult decisions and keep your finances on track without incurring debt. Here are some ideas that may help:

1.  Talk it out
If you are supporting family members, you need to have some very tough conversations and make decisions with them. Be upfront with them about your financial struggles and ask them how they can assist in cutting costs or stretching already strained budgets. Making this a collaborative effort in which everyone contributes to finding solutions will take some pressure off you as the provider.

2.  Have a budget
One of my clients was particularly frazzled recently. She was worried about not having enough money to make ends meet. But it turned out she did not really have a budget and had no idea where her money was going. She sent me her budget but her monthly bank statements told a different story, with many small amounts that she had not accounted for. Try our Budget Planner

3.  Find wasteful spending
Look for money you are wasting or not using adequately. More often than not, when I assist clients with their budgets, we are able to find spending (no matter how small) that can be cut.

My frazzled client’s small amounts added up to R1000 a month which she could use for more important things. She also had insurance policies she didn’t need as she has no dependants.

And her budget showed that her regular entertainment and eating out costs could be scaled back in order to reduce her financial stress.

The small amounts you neglect to look after, grow into big amounts that make your lifestyle unaffordable. Go over your budget. And if you have, go over it again and really pay attention to every cent you spend. You’ll be surprised by what you find.

4.  Consider your lifestyle
Be honest about your lifestyle and the things you can do without. One of my clients decided to tackle the hole in her budget by cutting down on red meat, drinking water instead of juice, giving the gym a miss and no longer having her nails done.

Entertainment, dining out, gym memberships and other subscriptions may need to be paused while you try to remain afloat. Remember, it’s temporary.

5.  Renegotiate
Consider renegotiating certain arrangements such as rent (or rental income, if you have tenants). We all have to make tough decisions regarding our expenses and these conversations need to be had.

6.  Get help
Consider consulting a professional to help you manage your finances. There is a misconception that financial advice is only for the rich. Nothing could be further from the truth. There are some advisers and institutions who offer cost-effective, and sometimes pro-bono, advice.

Sometimes all you need is a conversation - a sounding board from a professional to allay your fears and point you in the right direction. Read more: Do I need a financial adviser?

It will get better

The South African Reserve Bank is raising interest rates to keep inflation within the target range of 3% to 6%.

This protects the value of our currency and maintains financial stability in the country.

Raising interest rates makes credit (such as credit cards, personal loans, home and vehicle finance) more expensive and reduces disposable income. Read more: Who sets the interest rates and how do they affect me?

Reduced disposable income means consumers have less money to spend on goods and services, which ultimately contains inflation. This is important as rising inflation reduces the currency's buying power and weakens it against other currencies.

Stay ahead of the cycle

It’s a cycle that eventually turns.

If you feel the pinch with much less to spend each month, remember that this is temporary. We just need to ride the wave and do our best to keep our mental health in check while dealing with the rands and cents.

Reduce your expenses and keep exploring ways to improve your income. Being pro-active will make a positive financial future attainable.