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Managing household expenses in tough economic times

During economic hardship, try to limit your exposure to debt as much as possible.

These days it is not strange to pay a couple of hundred rand for a simple bag of groceries. The rand has weakened against the major currencies and there is a general expectation that this will continue for the next two to three years.

One of the expectations is that the prime interest rate is expected to increase by 2%-3% over the course of the next two years. We may also see an increase in personal and business tax, which will further strain our disposable income and drive up living costs.

During tough economic times, you should try to limit your exposure to debt as much as possible. Because debt rises with higher interest rates and it grows with interest every month, it magnifies the effect of negative economic news on your pocket.

Set yourself a target of when you want to be debt free and put any disposable income towards that goal. Rank your debts based on their interest rate and try to pay off the most expensive debt first. Don’t fall behind on any debt payments, but put any extra income towards the most expensive debt.

While you are paying off your debt, start saving for your retirement. Consider what the current economic climate would do to you if you were living on a small pension every month. So start saving a minimum payment every month towards your retirement.

Once you have done these two steps, you can build up an emergency fund of 2-3 months of your monthly expenses. Use the money that you have been spending on your debt before you became debt free towards building up this emergency fund.

An emergency fund gives you a welcome cushion if living expenses rise beyond your salary or you have sudden large and unexpected expenses, such as car repairs or medical bills.

Keep in mind that you have two types of costs: Fixed costs are costs that you have to pay, because you made an agreement with someone else or an external party. It includes those costs that are deducted by monthly debit order, such as your car or house payment.

Variable costs are the costs that you have control over. This could include movies, food and other costs. You can shop around for the best price for these expenses or you can decide, such as in the case of the movie, to postpone or cancel it to save money.

If you have large household expenses and very little room for luxuries in your monthly budget, then you should seriously consider holding off on unnecessary expenses. A new car or other luxury items might not be the best investment now, especially when interest rates are set to go up.

After paying your debt, try to eliminate non-essential expenses. To clearly identify non-essential expenses, track your monthly expenses closely and compare it against your budget. Use this as a guideline for identifying expenses that are not necessary and that you can stop making.

You should also consider enlisting the help of a certified financial planner that is accredited by the Financial Planning Institute (FPI). There are many people in the market who are salespeople and they will give you advice that suits their pocket or that are really a sales pitch framed as financial advice.

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Most importantly, invest in index-tracking ETFs and pay fees and commissions up front.

That way your indexes automatically adjust as they change based on their mandate and wont eternally be ripped off by advisors drawing commissions for “advice” that they gave you 20 years ago.

It will also put the spotlight onto whether the “advice” that you receive is worth the thousands of rands that you will be paying.

I don’t know where the writer gets the idea that interest rates will necessarily rise. We are in a downward spiral towards recession, if you ask me.

In such an economic environment, interest rates will probably stay where it is currently or, in an effort to stimulate growth, will be lowered.

Pay R 10,000 a month on your bond and start saving R 1,000 in a retirement fund???
How many months will you have to save to equal the R 10,000 INTEREST you are paying on the bond??? Surely you will get a better return by paying off debt. So what you are saying is if she wants money retire??This country loves to sell Life cover and retirement annuities. So your options if you want money, die or retire. Just something I have spotted over 20 years in theh industry

Not sure what you are saying? To clarify the point of some sort of dual “pay off bond asap and put some money to retirement.”

It is a question of risk management:

– pay off bond does not mean no new credit, a splurge to reward oneself or other unplanned enhanced financial responsibilies once the bond is paid off
– the big risk is that when you finally start to save for retirement it may be too late (time compounding effect) or just as bad
-returns are just not what they used to be when you finally start retirement saving, so you can never catch up. This is exactly what has happened in SA over the last 3 years. In fact due to socialist pressures here and offshore, returns are likely to reduce rather than increase for a very long time.
– as bad as excessive debt is, do remember that the principal/capital is FIXED and the gross debt only changes with interest outstanding. Inflation also erodes the real debt to some extent.

There is no one perfect answer and sure very expensive debt s/be retired asap. However “putting all one’s eggs in the debt retirement basket” is also risky and in fact unpredictable so be very careful.

To add to your points about retirement funding, there is also the immediate “return” to the extent of one’s marginal tax rate, plus the fact that retirement funds are protected from creditors.

Correction:should be debt REDUCTION basket.

Pay R 10,000 a month on your bond and start saving R 1,000 in a retirement fund???
How many months will you have to save to equal the R 10,000 INTEREST you are paying on the bond??? Surely you will get a better return by paying off debt. So what you are saying is if she wants money retire??This country loves to sell Life cover and retirement annuities. So your options if you want money, die or retire. Just something I have spotted over 20 years in theh industry

Pay R 10,000 a month on your bond and start saving R 1,000 in a retirement fund???
How many months will you have to save to equal the R 10,000 INTEREST you are paying on the bond??? Surely you will get a better return by paying off debt. So what you are saying is if she wants money retire??This country loves to sell Life cover and retirement annuities. So your options if you want money, die or retire. Just something I have spotted over 20 years in theh industry

Posting 3 times doesn’t clarify your argument

Technical difficulties with that company that may or may not be Telkom

As one of the “missing middle” class, one struggles with rising food, petrol, school fees, and, and … Salary increases never beat inflation, so one is almost forced into debt, even if one try to cut on all fronts, saving becomes almost impossible and as @finfit said – left with ” die or retire”, but even retire become a more than distant prospect, as monthly survival is becoming the norm.

What I am experience is that the country economy is not growing due to “mal governance” and the lack of any governance, politically I as a white South African will have to fend for myself, as few can be trusted, with investments and money. Very few , even here MW comments agree on investments, except that “Zuma must go”.

Life cover and retirement annuities, that almost all that is left for the “middle class”, and in most cases also the first default payments when things start to get thought.

The middle class is struggling to survive in the current SA, and pushed on the back foot with the current political situation – AA, BEE and quotas. And this is the object of this regime , to “verarm” this segment, and than set his eyes on the “white monopoly capital”.

Even when cutting all luxuries – DSTV, no clothing/cell accounts, no car payments – still on break even, after food, school and university increases, and I don’t see any light in the tunnel for us the middle segment…soon.

“Binary Options market”, is it something to stay clear off, is their any info on this please. Seen lots of ads with 20% and more profits, – or just as the story goes – if its to good to be true…scam!

Binary options are the same as playing the Roulette, without the zero and where you can only choose between black and red.

If it sounds too good to be true, it probably is. Especially with 20% or more profits.

Thanks henry, I’d rather stay clear than.

Just remember as you save in your retirement annuity, life goes on around you and you “may ” get married buy a house (Largest debt/interest) buy a car (again large debt) and then there’s the credit cards. Understand I am talking from what I see out there occurring. THEN you have 1,2,3,4 children. Now how are your finances?? I am not against a R.A. I say you need to prioritize where you are sending your money and with all the life that happens from 25 – 45 years old you will be paying HUGE amounts of debt. Smaller amounts (R.A.) at an earlier age may be the trick?. Also when the divorce hit’s you what do you do now?

End of comments.

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