Here’s how to manage your financial obligations amid rising inflation

The environment in which South Africans are having to manage their finances continues to get harder, with interest rate and general cost of living increasing sharply. There are several reasons for this.

Other than the nature of markets, various shocks, brought about by the war in Ukraine, have placed significant inflationary pressure of fuel, food, and other commodities.

Head of Personal Lending, Standard Bank South Africa, Steven Barker, says that the effect for consumers has been significant, with households having to deal with rapid inflation on the necessities that they rely and depend on.

“South African inflation surged to a 13-year high in June of 7.4%, up from 6.5% in May 2022. This has resulted in some of the largest annual price increases for goods and services like fuel, oil and electricity,” he said.

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Inflation hits different households differently

He went on to say that inflation rates impact every household differently.

“As such, consumers should understand where the increases are in their own inflation baskets to try and soften the impact inflation has on their standard of living. 

“An individual inflation basket represents the core goods and services that one usually spends their money on. For example, if the cost of telecommunication is a big inflation driver in your basket, the best course of action is to review your plans and contracts, shop around and find the best price for this service,” he advised.

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Taking on debt to survive

At the last monetary policy meeting, the SA Reserve Bank pushed the country’s repo rate sharply up, by 75 basis points, the steepest hike since September 2002. This will place even more financial pressure on consumers, specifically those who are borrowing money, as it becomes even more expensive to service debt payments.

“Times are certainly tough, and many consumers may have little choice other than to take on debt to survive. While debt may be the first lever that you can think to pull to keep your head above water, rather take a moment to stop and think, considering we are in a rising interest rate cycle, about some of the other levers you could pull first like finding other sources of income or ways to cut back on your expenses,” he advised.

Rather cut back

“Take a good look at your expenses to see where you could potentially cut back and save. While that daily takeaway coffee may not seem like it’s hitting your wallet too hard, think again. Small purchases, made consistently, end up adding up.”

But while cutting back, Barkers warns South Africans not to make the big mistakes of cancelling health, vehicle, home, or life insurance cover.

“While this may create some cash flow relief in the short term, it could leave you and your family significantly worse off financially should something unexpected happen,” he said.

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Barker said that if one still required additional funds, then only should they consider debt options.

“Never fund a short-term need with long-term lending, as it is going to cost you much more later down the line, eroding your ability to save and invest. In this instance, credit cards that offer interest free periods can be a good vehicle to utilise, if you settle that debt within the interest-free period,” he advised.

Remember the extras before making big purchases

If you are thinking about buying property in the current climate, understand your capacity for increasing costs. While you may be able to afford at the current interest rate, think about whether you could still afford it if interest rates were to go up again

Barker warned that with these purchases comes additional expenses like vehicle or home insurance, the cost of which will also start going up as inflation trends upwards and should be built into your budget.

“Consumers don’t want to find themselves in a position where they forego payments on their insurance, or any commitments for that matter, as skipping payments can negatively impact your credit score and ability to secure financing at a good rate in the future,” he said.

Talk to your bank

“If you are in financial distress, you’ve exhausted all options available to you and you’re still not coping, it’s very important to first acknowledge your position. Thereafter, approach your financial institution for assistance.

“The earlier you do this, the sooner arrangements can be made by both parties. The longer it is ignored, the harder it becomes to unwind from the position that you’ve placed yourself in,” he concluded.