2018 has been a tough year financially for South Africans: there’s been an interest rate hike recently, coupled with stagnant economic growth.
Consumers are expected to tighten their belts even more in the coming years, with some economists speculating that another VAT hike might be on the horizon. The downward trend is expected to continue into 2020.
However, rather than responding to financial headwinds as they arise, South Africans would be well advised to plan for necessary expenses, savings and cost cutting in 2019, in order to secure a better financial future for the years to come.
“It’s important to think about 2020 and beyond when you are doing your budget and planning for 2019, to ensure financial stability in the long-term,” says Vera Nagtegaal, the executive head of Hippo.co.za.
She recommends that you consider the following when you develop a financial plan for the year ahead:
Write down your income and your monthly expenses, including insurance premiums, medical aids, school fees, pension payments, staff salaries, food, rent or bond repayments, and any other amount that goes off your account at the end of every month. Be sure to factor in any increases that will come into effect in the coming year.
Nagtegaal advises to also consider any annual once-off costs that may occur during certain months of the year. For instance, you are likely to have to service your car once or twice in a year or make some once-off payments to your children’s school.
“Thinking about your expenses in the coming year from a twelve-month perspective as opposed to a month-to-month basis, will help you plan more effectively to ensure you do not come up short in certain months. Putting it all down on a document will help you identify where you might be overspending and where you can cut corners,” says Nagtegaal.
Reduce your debt
With the recent repo rate increase, your bank will up the interest rate on any loans you have. For this reason, Nagtegaal says it is vital that you make a plan to pay off any outstanding debts as quickly as possible.
Consider using the avalanche method (paying off the debt with the highest interest rate first) or the snowball method (paying off the debt with the smallest outstanding balance first) to plan how to pay back your debts faster. The type of method you use will depend on how your debt is structured, as well as your financial goals.
Save as much as you can
The benefit of an increased interest rate is that any savings you have will grow at a higher rate.
“Prioritise saving with a concept known as ‘pay yourself first’,” says Nagtegaal. “This means that before you spend any money, you should put a predetermined percentage of your salary aside – in a savings account or a unit trust – so you can gain the benefits of growth.”
Saving is your buffer against unexpected expenses in the year, and you should ideally have three months’ salary saved up in an “emergency fund”, as well as other savings plans for short- (one to two years), medium- (two to five years) and long-term (future and retirement) goals.
“Don’t be deterred if you haven’t managed all those different types of savings – rather start with a small amount such as a couple of hundred rand each month, and work your way up to bigger balances,” says Nagtegaal.
Don’t cut back on important expenses
Nagtegaal says that while it’s important to consider ways to cut costs and tighten your belt, you shouldn’t neglect your insurance policies. “In tight financial times, people often reconsider their insurance policies, but this is the worst thing that you could do. If you were to suffer a financial loss without insurance in place, the impact of incurring a massive expense at once will have more of an impact on your finances, as opposed to what it would cost to pay monthly insurance premiums.”
For this reason, she says it’s important to ensure that you consider putting household and car insurance, and life, disability and funeral cover in place to protect you and your family.
She adds that one of the best ways to ensure that you save on any insurance is to do your homework. “Get comparative insurance quotes to be sure that you aren’t overpaying on your policies.”