An integral aspect of good financial management is preparing for the worst. As some economists warn, the writing is on the wall that unless we see some major changes South Africa could be in for an economic recession.
The country’s economy contracted by 0.6% in the first quarter of the year – in part because of a five-month long strike in the platinum sector. A further contraction could see us in official economic recession.
It’s not just an abstract question of percentages and numbers – consumers are feeling the crunch and are set to feel it even more. Earlier in July the AA predicted possible petrol hikes of up to 26c a litre; an increase that follows just after June’s petrol price hike.
Furthermore, no one needs to tell us the cost of food and basic household goods is shooting up. In May the consumer price index grew by 6.6%, largely because of high food inflation. Financial experts believe this official number could increase to 6.7% at the end of July.
And for those of us paying off debt, Reserve Bank Governor Gill Marcus’ announcement of a 25-point increase in the repo rate is very bad news.
What this effectively means is a hike in interest rates, jumping the prime rate, or the ideal borrowing rate, from 9% to 9.5%.
What Should You Do?
It’s important to understand which way the economy is going so you can be prepared for every eventuality.
We’re still a relatively young democracy and economic bumps are inevitable. So there is no need to panic and begin packing for Australia just yet.
It is however important to shock proof not just your savings, but also your lifestyle.
Part of effective financial management means seeing where you can cut down on spending in order to shield yourself from potential financial blows.
Financial Management Tips To Help You:
- Going out for dinner, drinks and cocktails: in a word: stop. Invite friends over to your house for a warm hearty soup or stew. You can prepare dinner of chunky soup and bread for less than R100, with a R50 bottle of wine your night out is down to R150 for two people. Whereas in a restaurant you are easily paying R150 for the wine alone.
- Take a good long look at your grocery receipt and starting cutting back on the fat: the glossy magazines; chips and chocolate for the cupboard; fruit juice. Ask yourself if you really need it and try to reduce that bill by a quarter. Pop that extra money into your savings account.
- Gym, cellphone contract, subscriptions, DSTV: A lot of money bleeds right out of your bank account in debit orders. Take some time to look at those. Do you go to gym often enough to make the couple of hundred on your contract worthwhile? Perhaps it would be cheaper to join a running or walking club instead? Could you downsize your DSTV to just the channels you watch? Do you need to have the latest smartphone?
- Petrol costs: get out the old bicycle or if it’s less than a ten minute drive you could probably just walk there. Check out the public transport routes in your area. You would be doing good not only for your bank balance, also for the environment.
The key to financial management and surviving (even thriving) through tough economic times is to shock-proof both your bank balance and your lifestyle.
Even if you are doing well financially, cutting back on lifestyle costs will help you save more.
More money in the bank and no debt also mean you will benefit from interest rate hikes.
But key to weathering economic recession is to learn to live far below your means, this will ensure you are ready for any eventuality.