As South Africa grapples with the recession, smart spending could be the answer to dealing with the financial mishaps brought about by this.
With the country in junk status, the effects this has on you could be paramount. If not already, you’re bound to start feeling the pinch soon. This will force you to scale down on your lifestyle to make ends meet. It might involve giving up on the luxuries you typically enjoy, such as regular outings to the movies, restaurant dinners or the daily coffee that you may have become accustomed to. And while this could be hard at first, it will work in your favour because banks are becoming more selective on who to lend money to. Employers also face tough decisions such as possible retrenchments and reduction or suspension of bonuses.
You may be tempted to reach for your credit card, but this will only result in more problems. ‘Most financial institutions score you on the extent of use of your credit facilities. These include credit cards and revolving personal loans. And, their extensive use can negatively affect your credit score,’ warns Hans Binnekade, ABSA’s head of retail collections. In other words, overspending could put you in a position where you won’t be able to borrow any more money. And if you’re able to, you could find yourself in a never-ending cycle of debt that you will battle to get out of. Being disciplined about not using your credit or store card is one way to manage your finances in tough times. But, there are smart ways to save money and pay the bills without entirely cutting back on the luxuries.
Create a budget
Set up a reasonable, realistic budget. ‘Draw up two columns, essentials and extras, and list items under the relevant one. Pay your essentials first before allocating money for extra items such as entertainment. As you go, you will see where you can cut down,’ according to Lianne and Kerri Lutz of Women’s Wealth, a leading wealth coaching and financial consultancy for women. ‘From there, set up a savings account, even if you only manage to put R20 or R50 every month. This will add up and help you save towards your future.’
Reduce your fixed expenses
This includes things such as property rates, levies, school fees, domestic help, insurances, car and bond repayments as well as subscriptions. Trading down these major commitments could prove disruptive, but renegotiating your terms and interest rates could free up some money. ‘Your biggest expense is the interest you pay on your bond. If you have been in your property for some years, request fresh quotes from your lenders or revisit the matter with your bank. Your risk profile may have improved since you initially applied for the loan, which could translate into a rate cut of between 0.5% and 1% per year. That’s an annual saving of between R5 000 and R10 000 on a R1 million bond,’ advises Emma Heap, managing director of retail at 10X Investments. She adds that you could also save on your insurance premiums. “Consumers should also shop around for cheaper insurance, switch from full-time to part-time domestic help, move to a less expensive medical aid or settle for a second-hand car.’
Curtail your impulse buying
To save money, cut down on or cut out your impulse purchases as you’re likely to only regret them later. ‘Make a shopping list before you go out, and stick to it. If you see something you really want, first give yourself a cooling off period, then put it on the list,’ advises Emma.
Cut down on luxuries
Buying luxuries and going out can all add up and push you into the red. It may not be realistic to ditch these treats altogether, but cutting back could go a long way in helping you cope financially. ‘If you eat out twice a week, cut down to once a week or even just twice a month. Cut down on alcohol and cigarettes – both your bank balance and health will thank you,’ Lianne and Kerri say.
Go for cheaper brands
There may be some brands that you are accustomed to using and buying. And, your loyalty to these names may be costing you too much. ‘Do not become infatuated with expensive brand names because cheaper alternatives can be just as good,’ points out credit ombud Nicky Lala-Mohan. Therefore, try out a cheaper brand for a month. And if you don’t see the difference, then stick to it as it will save you money in the long run. While the words ‘downgrading’and ‘belt-tightening’, may bring some negative connotations, adopting them will teach you some vital lessons. They will benefit you in the hard and good times, which means you’ll always have money to spare in case of an emergency or for that occasional spoil, if the need arises.
‘Rather than thinking of changing your spending habits as downgrading, think of it as managing your money. Changing from just spending to spending smartly must become a lifestyle and not a short-term solution for when finances get tight. You will continue spending smartly after seeing the positive results of doing so. Smart spending is the first step towards financial freedom,’ Lianne and Kerri concludes.
Making decisions today impacts your future tomorrow. Perhaps prioritising your needs above your wants could be beneficial for you in the long run.
Written by Angelique Ruzicka
Also see: How to recession-proof your finances right now
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