If you’re like most people, you and your family might be worried about the financial future as the pandemic grinds on.
You can reduce some of the stress by taking a fresh look at your finances, with a view to stretching your rand further and ensuring that you’re on a sustainable financial footing.
Naked co-founder, Ernest North, offers some tips about how you can get your finances in great shape.
1. Sleep on each purchase decision
We’re constantly bombarded by marketing and advertising, all designed to get us to open our wallets. And when a friend or family member talks about their new PlayStation 5 or car, the fear of missing out (FOMO) can kick in hard. Before you run up your credit card bill balance, take a deep breath and think about whether you really need to buy that leather sofa or shiny new gadget.
There’s a massive difference between really needing something and just wanting it. Don’t buy on impulse – consider each purchase decision carefully. If you decide you can afford it and the item will really improve your life, then buy it. However, shop around for the best price and consider waiting for a sale or promotion before you pounce.
2. Use a budgeting tool
It’s not always easy to keep track of where your money goes, especially if you have more than one card or bank account. Consider using a budgeting app on your smartphone to track income and expenses.
There are many choices, but one of our favourites is the free, local 22seven app. You can link accounts from most major South African financial institutions to it, as well as set limits to your spending so you receive push notifications to help keep you on track.
3. Review subscriptions and memberships at least once a year
Your bank, medical aid scheme, car and home insurance provider, and telecom networks will generally hike their prices once a year. The increases are often well above inflation because companies know that moving to a new provider is a chore.
However, it’s a good idea to compare fees and prices from time to time to make sure that you’re on the right plan for your needs and to ensure your providers don’t take your business for granted.
Some more specific tips:
- If your cellular contract has ended, you’ll be put on a month-to-month contract until you collect a new smartphone and renew for two years. Your old contract is priced to include a handset subsidy. Take the opportunity to review the minutes and data you use, whether you actually need a handset upgrade, and then find the right package for your needs. It may be cheaper to forego the handset and contract, go prepaid and buy your own smartphone.
- Check your services like Netflix, Showmax, DStv, Spotify, Medium and whatever else comes off your account every month. You may find you are paying for things you never use. Consider cancelling the ones you don’t use.
- Many car insurers hit customers with annual increases that do not take the depreciating value of the car into account. Some vehicles’ repair and import costs inflate more than others, but for most cars your total premium for the same vehicle should not increase by more than 5% to 10% a year, unless your personal circumstances or risk profile has changed – for example, you moved to an area with more crime or were involved in an accident. If you get hit with a high premium increase from a traditional insurer, challenge it, and they may well decrease it to keep your business. Shop around to get quotes if you’re still not happy. With a digital provider like Naked, you can get a quote online in a matter of seconds. This will be the lowest and fairest price—with no need to negotiate or to even speak to a call centre at all.
4. Eliminate your debt as quickly as possible
Step one to saving and taking control of your financial future is to eliminate existing debt. Prioritise short-term debt with high interest rates, such as credit cards, overdrafts, personal loans and car repayments. With interest rates of around 17.5%, each R1000 you borrow on your credit card costs you R175 in interest per year!
Once you’ve tackled the short-term debt, you can focus on your bond, if you have one. Adding a bit extra to your home loan repayment per month can help you to pay your bond off faster and save you a fortune in long-term interest.
If you have an access bond, you can also park extra money in this account to bring down the interest that you pay and still access the cash if and when you need it.
Some more specific tips:
- The snowball method is one technique that can help you with short-term debt. This method focuses on paying off your smallest debt balance (excluding your bond) before moving onto larger ones. The advantage of this approach is that it can help you simplify your financial life and close down cards and accounts you no longer need. You’ll also get a morale boost from watching your debt disappear.
- The debt avalanche method is a way to pay off debt by getting rid of your balance with the highest interest rate first. This makes sense if you owe a lot of money on credit cards and other high-interest loans.
- Your access bond is the cheapest financing vehicle available to you. If you’re ahead on your bond repayments, consider tapping into your bond rather than getting a car loan if you need a new vehicle, for example.
5. Consider becoming a one-car household
For many middle-class households, owning a car per adult is the default. That’s changing in the COVID-19 era with many companies embracing work-from-home as a long-term trend. It’s worth asking if it’s necessary to have two cars per family, especially if one of you will be working from home permanently, or can get around using the Gautrain or MyCiti bus.
If you hardly ever drive your car during the week, and do most things together on the weekend, you may be able to get by with one car or trade down one of the vehicles for a cheaper car.
Although some costs can be reduced when you’re not driving – like pausing the accident portion of your insurance to pay less on the days that you don’t need it – the overhead costs of owning a car remain.
Many professional couples in the large metros are finding that the costs of renting a car for occasional long trips and Ubering for shop runs or short commutes can be lower than owning two cars, when instalments, insurance, maintenance, petrol, and depreciation are factored into the equation.