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There are many unexpected things that can happen that could result in us losing money easily. Things like a burst tyre, a leaking pipe or an unexpected tax claim could throw some household budgets off course.
But this coupled with current market conditions could push a lot of households into the red. These unfavourable conditions are unlikely to ease any time soon. It’s forcing many households to watch every line item in their budgets.
‘After nine rate hikes, South Africans are effectively in round nine of a ‘cost of living’ boxing match, without much certainty about how many rounds they may still need to face. At this stage of the fight, no household should be without such a budget spreadsheet, as it is the only way of ensuring that one makes informed, sensible, and intentional decisions of where to continue spending and where to reduce or stop spending,” says Lizl Budhram, head of advice at Old Mutual Personal Finance.
Budget spreadsheets and watching every expense like a hawk is one way to take control of the situation, but according to Hayley Parry, money coach and facilitator at Truth About Money, a 1Life initiative there are other inventive ways to cope and tackle a mountain of debt.
Here she shares some tips and real-life examples of people who have taken some more drastic measures to cope financially.
Move back in with the parents
This may sound like you’re regressing but it could be quite a smart move to get your finances back on track. Parry says one learner of the Truth About Money initiative moved back in with her parents, while her fiancée moved back in with his. This was after she’d racked up a mountain of debt after dealing with the so-called ‘black tax’ – a scenario many young, black people find themselves in where they’re financially supporting not just their parents but perhaps other generations within their family (siblings, children, cousins etc.)
Parry says: ‘Everything that they used to make ends meet living alone was used to pay off their debt using the snowball method. It’s a fairly drastic example, but it worked.’
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Move province
Parry says another learner moved from Johannesburg to Durban as they needed to change several things including taking their child out of private school and into a government school.
Parry adds: ‘She felt that moving province was one way to achieve this new start and she also found that the general cost of living reduced quite significantly – even in small things like children’s parties. In Durban, children’s parties are far more low-key than in Joburg and it is acceptable to offer smaller gifts.’
Engage in a house swap
There are plenty of estates with amazing facilities dotted around the country. An out-of-the-box way of reducing holiday costs would be to engage with another family of a similar estate and do a holiday house swap to reduce costs. ‘It’s a good way to continue to have experiences – you rather a cost of getting there rather than on top of that paying for accommodation,’ explains Parry.
Delay, don’t deny
Another way to prevent yourself from falling into a debt trap is to adopt the mantra ‘delay, don’t deny’. Instant gratification is still a major problem and in the world where we’re constantly “keeping up with the Jones’” it’s hard to say no to something you want right now. But the key is identifying that this is a “want” and not a “need”, but also promising yourself this item or experience in the future. This will make saving and paying off debt less of a burden in the mind as there’s a reward to look forward to for all the hard work and sacrifice.
Parry explains: ‘So it’s not saying to yourself “I won’t upgrade my car” it’s about saying “I won’t upgrade my car now”. Reframing your mind often makes all the difference.”
Stay ahead of inflation
Things may get a little better as CPI inflation is set to ease over the next few months as a result of lower food inflation. Interest rates, according to Old Mutual, are also close to peaking. But that doesn’t mean you should relax about what your savings are doing.
Budhram says it’s important for consumers to be aware of the risk of inflation in their savings plans. For example, assuming a loaf of bread costs R20,00 and inflation is at 10% per annum: next year, your R20,00 buys nine-tenths of a loaf; less than two-thirds of a loaf in 5-years; and about two-fifths of a loaf in 10-years. ‘You must work with your financial adviser to ensure that your investments are outpacing inflation by an adequate margin and that your asset allocation is suitable for both inflation and volatility risk,’ she says.
