Lessons from the budget that could benefit your back pocket
Admittedly the scale is much bigger, but most South African households are grappling with the same problem as the finance minister – trying to do more with less.
Just as Covid-19 has taken its toll on the country’s finances, resulting in lower income for the Treasury, so many households have had to deal with retrenchments, salary cuts or not being paid bonuses or incentives.
And just like the finance minister, people’s options are limited to either finding other sources of income or cutting expenses.
In a stuttering economy it’s difficult for Tito Mboweni to increase taxes, just as it’s hard for consumers to generate more income. There aren’t many options: ask the boss for a salary increase, grow your business or start a side-hustle.
As most consumers know, reducing expenditure is often easier said than done and usually involves some compromise. The finance minister must consider where cuts can be made and what the consequences will be. Is it healthcare, education, safety and security, energy, social grants, infrastructure development or public service salaries?
Households have similar difficult decisions to make. Do you try to reduce bond or rental payments by selling or moving somewhere cheaper? Take your children out of a private school? Cancel medical aid policies or armed-response contracts?
For most people these aren’t viable choices, but just as the finance minister wants government departments to cut fruitless and wasteful expenditure, careful consideration of how and where money is spent may deliver some savings.
Do you really need to drive the latest model car, wear the trendiest clothes, eat out quite so often or subscribe to services you don’t need or rarely use?
“Most of us don’t often take a careful, honest look at where we’re spending our hard-earned money, but it’s worth doing. You may be surprised at how much you spend on things that aren’t essential and what you could save if you cut these expenses,” says Shafeeqah Isaacs, head of financial education at financial services provider, DirectAxis.
But she warns not to be tempted to stop or withhold repayments on your bond, loans or other credit agreements you may have.
Doing this will negatively affect your credit score. Ultimately this will make it more difficult, if not impossible to apply for credit, get a loan, a bond or car finance. It could also mean that you pay more interest.
“Your credit score tells people how financially reliable you are. A poor score limits your options, while a good score will enable you to access more financial opportunities,” Shafeeqah says.
Most South Africans don’t know their credit score. News headlines regularly remind us about how ratings agencies view the country’s creditworthiness. The “junk” status that has made it more difficult and expensive for the government to borrow money is the national equivalent of a poor personal credit rating.
“A good credit rating means you are regarded as low-risk, something that is considered favourably by everyone from landlords to financial service providers. Whether you’re finding somewhere more affordable to stay, need some money to grow a business, start a side hustle or even deal with an unexpected emergency, a sound credit record is an advantage.”
Another aspect of the national budget that households can apply to their finances are the regular budget reviews. The budget is the country’s financial plan and the reviews check how well it is being implemented.
“Similarly, regularly checking your household budget will help keep unnecessary expenses in check. It also allows you to see how much progress you’re making towards your financial goals, whether these are reducing your debt levels, saving or investing for the future. Your credit rating will provide an independent check on whether you’re heading in the right direction.”