It’s not the end of the world if the petrol price goes up by a few cents every month, but it can feel like doomsday when your household bill starts soaring, and luxury items seem like a distant dream. But if you plan wisely and well, you can live within your means, even in today’s tough economy.
When the March inflation figures were released, in which StatsSA claimed our living expenses rose by 6.3% over the last year, some sharp individual tweeted “I’m amazed, maybe they should check again”.
And maybe they should! I would love to find the household whose living expenses only increased 6.3% over the last year. What I do know is that our household expenses have increased on average by at least 10%, if I take into account the rise in the price of petrol, electricity, school fees, medical aid contributions and our monthly grocery bill, which has risen by 20% in the last 18 months.
Add to that the impact of an increase in interest rates of 100 basis points which added 7% to our monthly mortgage repayments, and our cost of living is rising well above what salary increases employers are prepared to give, and certainly more than the rate I can increase my freelance fee.
This means we are going to have to stress-test our budget as now more than ever we have to start managing our money as a limited resource making sure every cent we spend counts – and that starts with knowing where our money goes each month.
My 2016 survival guide
Review my budget every three months
Price increases will be coming fast and furiously and I need to be even more careful around non-essential spending. If mortgage rates increase by an additional 100 basis points this year it will add R835 a month onto a R1 million mortgage.
When our finances were less stretched, we were only reviewing our budget two or three times a year. We need to increase that frequency to stay on top of price increases and to instil some spending discipline.
If you are starting a budget for the first time, you will need to review it monthly and also capture everything you are spending. It takes about three to six months to build up an accurate budget assessment. We are currently using the 22seven.com money management app for our household budget.
Stress test the budget
We need to find some fat in our budget which we can cut back on to absorb some of the price increases. That means deciding which lifestyle items we are prepared to cut out first. Eating out is already one of the casualties but it’s easy money to save. Cutting back on two meals at a restaurant per month would absorb future mortgage repayment hikes.
Once you have a proper budget written up, add 10% to all your essential bills, such as groceries, electricity and petrol and see if you can absorb these costs and what you need to be cutting back on now in order to survive the year.
Go on a spending diet
I have committed to no impulse spending or purchasing of non-essential items until my next budget review, although I have allocated some budget for work clothes.
The best way to achieve this is to leave all credit cards and store cards locked away at home when you go shopping. It also helps to remember that when you buy items “on sale” that is not saving money – you are still spending, so don’t be tempted.
Bullet-proof my mortgage
Fortunately we already pay an additional amount into our mortgage each month but any household budget needs to prepare for higher mortgage and car finance payments.
The rate hikes are continuing so you may as well adjust your budget now by increasing the repayments on your prime-linked debt (usually mortgage and car finance) immediately. Those extra payments will help reduce your debt and also prepare you for those higher payments.
Review those monthly bills
Every few years we review our short-term insurance policies, especially for our cars. It is a competitive environment out there and invariably I am able to get my insurer to reduce the annual premium increase. Bank fees, gym fees, subscriptions should all be reviewed as part of a budget tightening exercise.
Work those loyalty points
Last year our eBucks really paid off when we unexpectedly had to buy a new fridge. I realised that loyalty points can actually be part of your emergency fund.
Between the loyalty rewards offered by banks, insurers and retail stores most consumers have some form of loyalty programme. It is worth spending the time finding out what benefits you can utilise to get through the rest of the month. Fuel rewards are especially useful as the fuel price rises.
For more valuable tips to survive Financial Armageddon, don’t miss our Iris Session about Bringing In Extra Cash, in which David O’Sullivan and an expert panel is unpacked ways to supplement your income. You can watch it below or click here for more information.
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