South Africans will be reviewing their finances and taking a closer look at how they spend money following the increase in interest rates by the South African Reserve Bank (SARB).
The 50 basis points hike to the repo rate by SARB means that the prime lending rate is now 11.75% while the the repo rate sits at 8.25%.
Bertie Nel, head of Financial Advice and Planning at Momentum, said that interest rate hikes increase the cost of borrowing for consumers, making it more difficult for them to repay debt.
Along with interest rates, other factors are also putting pressure on consumers, including a cost-of-living crisis and rising inflation.
Here are 5 tips to help you manage the increase in interest rates:
Draft a budget plan
The first step to starting a budget is knowing how much money is coming into your household, including your spouse and other streams of income.
Then, create three columns for:
– fixed expenses such as rent/bond, levies, school fees, car payments, insurance and bank fees.
– discretionary expenses, including entertainment, fuel, clothing, data, toiletries and transport.
– savings: money that you are putting aside towards a savings goal.
It is important you stay committed to sticking to your budget plan if you want to reap the rewards in the long run.
Take care of your bills
It may seem obvious, but paying your bills on time every month is important. If you pay late, you may pay a penalty or interest, which will accumulate on your accounts that are already overdue.
Speak to a financial adviser
Lee Hancox, a certified financial planner and the head of Channel and Segment Marketing at Sanlam, said: “Financial advisers are there to help you on your journey to financial confidence, to help you articulate your goals, and put plans in place to achieve them.”
Hancox said that people should speak to their financial adviser if they are tempted to save money by cancelling or decreasing their retirement savings or life cover contributions. This is a big decision that you need to discuss with your financial adviser to make sure that you have considered all of your options.
Revisit your financial goals
Write down your financial goal and decide which goals you are going to prioritise. Having savings goals will prevent you from being tempted to spend money unnecessarily.
You can have long-term savings goals, such as saving towards a car or a house, and short-term savings goals, like savings towards a holiday.
Start saving
Nel said: “While all these factors make it more difficult to put money away, we should not underestimate the importance and value of saving money, especially when even tougher times lie ahead.”
You can put the money away in an emergency fund that can be used for unforeseen expenses.
According to Tyrone Lowther, head of Budget Insurance, it’s recommended you have three to six months’ worth of expenses saved up in your emergency fund.
“Start by saving a small amount each month. Commit – don’t withdraw anything from this fund unless it’s a crisis,” Lowther said.
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