Manage climbing costs

Rising living costs will in coming months put pressure on consumers and many who haven’t already trimmed their financial spending habits will be forced to do so. Get ahead of the curve and cost-proof your finances now, says Calvin Bowles, Head of Business Development at Old Mutual.

He explains: “The recent price hikes have been substantial. The price of petrol has increased considerably and the fuel levy increased by 30 cents per litre. The costs of imported staple foods like rice have risen by 12% in the last quarter, while the costs of locally produced staples like samp and maize meal have risen by 36% and 31% respectively year-on-year.”

Combined with an electricity price increase of nearly 10%, these increases in basic necessities are likely to continue, if not accelerate.

“Under these circumstances, the people who will have the hardest time are those who are in debt. People who earn a modest salary and are free of short-term debt may have an easier time than those who earn a lot more but are shackled to debt that carries high interest.”

He points out that this is especially true when interest rates are rising as they are now. Predictions vary, but the think-tank FocusEconomics believes the repo rate will climb to 6.85% in 2016 and may reach 7.05% by 2017. The interest rate that is charged on debt like overdrafts, personal loans, credit cards and store cards is linked to the repo rate and consumers who are used to having a lot of this type of debt are likely to experience difficulty.

“Remember that creating wealth is as much about controlling debt as it is about income. The good news is that there are products that can help you manage your spending and increase your savings.”

One example, notes Bowles, is Old Mutual’s Money Account, which enables you to save each time you spend. Essentially it is two accounts in one, a fully transactional SWIPE account and a SAVE account. Here’s how it works: you can choose the SWIPE & SAVE feature, which automatically adds a percentage (up to 15% of your daily spend) to your SAVE account each time you swipe your card. In other words, if you’ve selected to save 10% and you spend R100 on groceries, then R10 will be added to your SAVE account and R110 deducted from your SWIPE account (R100 spent and R10 saved).

The FOCUSED SAVE facility enables you to select a fixed amount to be transferred regularly from your SWIPE account to your SAVE account. You can choose to do this the day you get paid, for example. This underpins the principle of saving before you spend, rather than to only build on your savings if you have money left at the end of the month.

Your SAVE facility is linked to the Old Mutual Money Market Fund Unit Trust, which aims to earn you a higher return than you would have earned in a conventional savings account. An important feature is that your savings can be accessed instantly by transferring an amount from your SAVE account into your SWIPE account using cellphone, internet banking or the Old Mutual app. You will not need to give notice and there is no penalty for disinvesting.

The Old Mutual Money Account offers free access to online purchases, inter-account transfers and unlimited point-of-sale swipes. You can open an Old Mutual Money Account at your nearest branch, which you can locate by visiting www.moneyaccount.co.za.

Apart from exploring new products, tough economic times are also a good opportunity to empower yourself with financial acumen, says Bowles. The On the Money financial education programme uses the habits of South Africa’s Big Five animals to teach good financial habits. It’s available as a booklet or via online workshops in any of SA’s official languages. Visit the On The Money site for more information.