Limit the impact of rising costs

Many South African consumers might be forgiven for feeling a little punch-drunk at ongoing increases of living costs. While many of these costs are out of our control, there are steps you can take to limit their impact on your wallet.

That’s the view of John Manyike, Head of Financial Education at Old Mutual, commenting on the announcement of a major fuel price increase in June. He said this is the latest in a number of increases in living costs that are likely to add more financial pressure on South Africans for the rest of 2016 at least.

The Department of Energy announced that petrol will increase by 52 cents a litre and diesel by 76 cents a litre on June 1. This is over and above rising electricity tariffs and food inflation.

Manyike says: “Some South Africans in lower income sectors spend as much as a third of their wages on transport. Fuel price increases generally lead to increases in public transport costs, which will in turn reduce breadwinners’ disposable income.”

But it’s not just these consumers who’ll be affected, he adds: “As we know, South Afrians with too much short-term debt are increasingly feeling the pressure on their stretched budgets. Their predicament is aggravated by the prospect of more interest rate hikes, and the possibility of a repo rate increase. The pattern of price hikes is likely to continue for the rest of this year, so reducing debt and living costs must be sustained for some time to come.

Equally worrying, says Manyike, is the emergence of consumers incurring short-term debt to cover the cost of basic foodstuffs. This is only likely to deepen families’ financial problems.

“The first step towards a debt-free future is to understand the importance of managing your personal finances; break old habits that get in the way of financial stability and establish new, healthier money habits,” says Manyike.

He explains five basic actions to implement right now to start your journey to being debt free:

  • Tally your debt and make a conscious decision to pay off the most expensive debt first. This is not necessarily the largest amount outstanding but rather the account that charges the highest interest rate. These are typically high interest bearing credit cards, store cards, overdraft facilities and personal loans.
  • Avoid accumulating more debt by paying for your purchases with a debit card or cash, rather than a credit card.
  • If you receive an annual bonus or any other unexpected cash windfall, contribute part of this towards reducing your home loan or car finance, as this will reduce the amount of interest you pay overall on these longer-term loans.
  • Set aside a portion of your bonus for investing over the long-term, like a tax-free savings plan, a tax deductible retirement annuity or an endowment fund.
  • List your unavoidable commitments for the rest of the year: school fees, medical bills, inflation adjusted insurance premiums, vehicle services – and ensure you set aside enough to handle those expenses without financial pain.

Lastly, if your circumstances change, such as a loss of income, get updated advice from your - financial adviser to ensure that you’re adequately equipped for your changing situation. It is better to approach your creditors and discuss your impending difficulties than to ignore the problem or wait for them to call you wanting to know where their money is.

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