61% of SA badly impacted financially by Covid-19, 43% in arrears on their accounts
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It’s been a long winter of discontent and many consumers are drowning in debt. This spring, timeous action and a few smart, practical adjustments – especially when it comes to settling debt, planning wisely, cutting costs and saving - could bring about a positive financial change of season.
TransUnion’s latest Consumer Pulse Index indicates that 61% of South Africans have been negatively impacted financially by Covid-19, with many of them intending to cover shortfalls from their savings or by borrowing from friends and family. According to Experian’s most recent Consumer Default Index (CDI), South African consumer debt has surged to R1.9 trillion, with vehicle loans, credit cards and personal loans being the biggest defaulting culprits. It adds that consumers are increasingly accessing personal loans and using available revolving credit card facilities to cover daily living expenses.
“In the TransUnion index, just over two in five consumers (43%) reported that they’ve been in arrears for a bill or loan in the past three months, with 31% who have missed a payment on one account, 33% on two accounts and 17% on three accounts. This is especially worrying given the fact that, according to a Tyme Bank survey, 76% of South Africans were running out of money before the end of the month in pre-Covid times,” says Susan Steward of Budget Insurance. “Whether you’re in a financial pickle or not, spring offers a great opportunity for a financial change of season – adopting a more calculated approach to managing your money, borrowing, budgeting, settling debt and saving.”
Budget Insurance outlines these personal finance spring-cleaning tips:
- Start NOW: Putting your financial spring clean off until tomorrow, then next week and next month could see you wasting hundreds, perhaps even thousands of rands.
- Go through your filing and clear the clutter: You should be filing all your payslips, invoices, receipts and tax certificates so that you have them handy when you are doing your tax returns each year – it could help you to get some money back. SARS requires you to keep these documents on file for a period of five years after the return is filed. That said, get rid of older documents that you don’t necessarily need any longer.
- Create, maintain and revise your budget: In a recent survey conducted by Budget Insurance and 1 Family 1 Stockpile, a 350 000 member strong Facebook group, 33% of respondents said they don’t save money because they don’t stick to a budget. If you don’t have a monthly budget plan with accurate income and expense figures, now’s the time to start one.
- Cut, but be careful: It’s a good idea to cut unnecessary or non-essential expenses first, but be mindful. When money is tight there are certain expenses you may be tempted to cut, like vehicle and home maintenance or your monthly insurance premium. This could bring some short-term relief, but may end up costing you far more in the long run.
- Revise your spending: Are there ways to improve your spending habits behind the trolley, in banking fees, behind the wheel, at the dinner table, on your utility bill or subscriptions? Buying a less expensive brand, shopping for specials, saving a couple of rands per tank or racking up those savings with a loyalty card may seem insignificant, but in just a couple of months it could save you thousands.
- Stockpile: You can save thousands every month by looking out for and taking advantage of discounts and specials. By buying more, at a lower price, you’ll be able to stretch your rand and shrink your monthly shopping bill.
- Review your insurance: Not all insurers automatically revise your insurance premium each year, aside from an annual escalation. However, if you insured your car for market value and the value has depreciated, your premium should go down too. Check your inventory to make sure that all unnecessary items are removed. Also don’t be absolutely set on sticking with one insurer - shop around and compare to save even more.
- Avoid the love for credit and the debt trap: Reduce the number of credit cards you carry and rather pay with your debit card or cash if possible. If you can, pay extra into one card until the debt is paid off, then start paying that extra amount into another card until it is also paid off. Don’t use your credit card unless you are able to pay the minimum amount due each month. Never buy food or other necessities on credit or use one credit card to pay your debt on another one. Avoid taking higher credit limits, as they’ll tempt you to spend more. Avoid instant gratification pressure – rather save up cash to buy what you want.
- Don’t spend what you save: Going through all the effort of saving only to fill up your budget with more non-essential expenses defeats the purpose. Rather save up or settle other debt.
- Get that emergency fund started or boost it: With the constant threat of events like lockdowns and job losses, it’s recommended that 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.
- The 10% saving goal and the 30 day rule: Saving every month is hard but you should make it a priority. The rule of thumb is to try keep 10% of your salary aside for savings. Also avoid instant gratification by waiting 30 days to decide whether a luxury purchase is really worth it. Impulsive buying is one of the major factors that contribute towards debt.
- Bank and invest wisely: check your bank fees carefully and look at the interest you earn on your savings. Could you be spending less or earning more? Research what other banks offer and look at other ways to invest your money, in shares for example. Also look at what rewards programmes are on offer, and take advantage of them. And if you have a credit card, adopt an ‘emergencies only’ attitude and use your debit or cheque card for your everyday expenses.
- Explore other income streams: Turning your hobby into a side hustle, or helping a friend to market their business at commission, for example, could supplement your income.
- Stick to your goals, but be flexible: Your budget and savings goals can be impacted by events out of your control, like unexpected expenses. Revise them accordingly.
- Reward yourself, motivate yourself: If the goal was to save enough money to go on a holiday, then go ahead and enjoy that well-deserved break. That being said, it’s a good idea to set a budget for your trip to avoid repaying post-holiday debt in the coming months.
“Just like your home benefits from an annual spring clean, with a fresh look and less clutter, your wallet and your bank account can also reap the benefits of an annual financial spring clean,” Steward concludes.