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The cost of living in tough economic times

Published Jun 15, 2022

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It is no secret that the overall cost of living in South Africa has gone up. We have all felt the pain of the increase in the price of cooking oil, petrol and the general inflation basket. A running joke is that “the higher prices may force South Africans to eat and consume reasonably come Christmas”.

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Inflation is the loss of purchasing power, which simply means that your money will not buy tomorrow what it can today.

There are various reasons for high inflation in an economy where consumers access a lot of credit and want to spend. We saw during the hard lockdown a cut in interest rates, making credit cheaper to access. Many businesses may need to raise prices to meet demand if there is a lack of sufficient supply. Companies may also decide to raise prices to improve profits because the risk of losing the customer is low. However, developments across the globe can also influence inflation rates. The invasion of Ukraine by Russia has had an adverse impact on oil and wheat supplies, causing skyrocketing petrol prices in South Africa.

So what changes can you make to your budget if the cost of living increases but your income remains the same?

• Transport. Last year, the inland price of unleaded 95 was around R17, and this week it has gone past the R24 mark. Many South Africans will feel this every time they fill up their cars or use public transport. To help employees, employers can reconsider working from home. As consumers, we can find shorter routes to work, weigh out online shopping versus going out to buy groceries or find a friend to commute with, and split petrol costs.

• Food. You can revisit the type of food you buy, considering slightly cheaper brands, buying staples and cleaning agents in bulk, and avoiding buying unnecessary food just to fill up your fridge when you know it will go to waste. Carefully planning meals can help in only buying the necessary ingredients.

• Rent. You may not feel this immediately because you pay a standard amount according to your lease, but you may have to expect a rent increase when it is time to renew it. Start factoring in a 10% rent increase in your budget and put that money into a savings account. In this way, you are getting into the habit of paying more rent than you currently do.

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• Loan repayments. Due to interest rates increasing, your credit instalments will be affected. You may be able to negotiate with your credit provider to extend your repayment period to pay less. You should also reduce your debt to a manageable amount. If you have high debt obligations, take one account at a time (using snowball or avalanche methods) and pay extra to get rid of them as quickly as possible.

Increase your income

Rearranging your budget is not the only way to go about this increase in the cost of living. On the flip side of the coin, you can try to increase your income. Getting a new job is not the only way to increase your revenue. Dhaval Bathia’s 7R Theory shows us seven different ways of creating wealth through passive income.

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1. Rate – money made from sales. Are you creative with your hands? You can sell things you make to your friends and family or open an online store. You can even buy things wholesale and resell them at a higher price.

2. Remuneration. You can use money from your salary and put it into an investment account that will pay you later.

3. Replication – copying or reproducing. If you have an app in mind, you can use one that already exists as your blueprint and add your flair to it. This can work for any product or service; however, be mindful of intellectual property laws.

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4. Rent – earning money through lending your assets. You can do this by opening a room in your house on Airbnb or, if you have a spare car, you can let someone drive it on Uber. You could lend out a smartphone or laptop to aspiring digital content creators, or perhaps you are that student that bought the prescribed textbooks – you can rent those out too.

5. Royalties – earnings from creative projects. If you write a book or song you can receive money from the books and songs sold or played on the radio.

6. Rights – permission to entities to use your intellectual property. If you have a design, project idea or invention that someone wants to buy, they can pay you to use or develop it, but you remain the owner.

7. Returns – growth on an investment. You can invest in short-term investments that are highly liquid such as cash and bonds, or longer-term investments such as shares and property.

Buckle up!

Inflation has a detrimental impact on cash flow, and it’s even more devastating when the rate of inflation outmatches salary and income gains. It’s time to buckle up, tighten belts, pay off high-interest-rate debt (join a debt stokvel), and find additional income streams!

PERSONAL FINANCE

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