How to budget and manage your debt
While most are expressing worries, especially about increasing costs associated to living, following the 2019 National Budget Speech, the reality is that ‘it is what it is’ – and as consumers, we need to work around it.
In many respects, this means better financial planning, managing your spending better and of course savings. This will not only ensure you can survive day-to-day, but that you have a security blanket for the future and where possible – avoid getting caught up in unmanageable debt.
Despite the very valid concerns in the market about performance of the South African economy, two important themes portrayed in the recent Budget Speech were that of reducing debt and managing spend.
The State is looking to ‘clean up’ current debt, despite the budget shortfall and a tough economic outlook for 2019. No changes announced during the Budget to personal income tax and with a subtle push for an unchanged inflation rate for 2019, there could be an opportunity for you to leverage. You could look to use this year to ‘catch a break’ and effectively manage your current debt - or even better, clean it up all together.
We know this is never an easy feat, but here are some tips that may come in handy:
Calculate your total debt figure
The likelihood is that you have already done this, but if you are paying off debts monthly, re-evaluate your progress and determine what your total debt figure is. Following this, ensure you have a very clear understanding of what you owe where, and the minimum payment required each month.
Set yourself a realistic goal
The cost of living rises constantly and 2019, based on the Budget, will be no different. It can be very difficult to spread your money across a budget, which means that you need to be realistic about the debt paying focused goal you set for the year, to stay motivated.
This goal must take into consideration how tax changes announced in the Budget – not least of all changes to fuel levies, for example - will affect you. Then based on this, work out your budget and what you can afford to pay towards your debts realistically. Setting a goal that is too ambitious will likely only demotivate your ability to stick to it.
What you should also consider is that the Reserve Bank may take the decision to adjust interest rates (up or down) in line with inflation later in the year and based on performance in the economy. So, it’s best to use the time now to not only avoid accumulating any further or unnecessary debt, as far as possible, but to prioritise getting a better handle on, or pay off your debts that incur a higher interest rate first – as this can in fact help you save money over time.
Once paid off, close the account
This is often very hard to digest. The temptation is always there to spend on credit based on both needs and wants. We are living in times where change is not going to occur overnight, and monthly expenses will not decrease anytime soon. To alleviate pressure on your finances, if you are able to work through your debt effectively, empower yourself further by closing that credit account down, and use the repayment you would normally make to save.
Finance Minister, Tito Mboweni, ended off his 2019 Budget Speech by noting that ‘this is a Budget that plants a seed for renewal and growth.’ Having this same attitude towards your debt and leveraging on the aspects of the Budget that provide a slight opportunity for your own renewal and growth can be life changing. Don’t waste time – start investigating your debt management today.
Supplied by 1Life