In January the South African Reserve Bank’s Monetary Policy Committee (MPC) increased interest rates by 25 basis points escalating the repo rate rate to 7.25% and the prime lending rate to 10.75%.
According to Bertie Nel, head of Financial Planning and Advice at Momentum, economists warn that an increase in interest rates is on the cards this month which may benefit investors but could also have a dire impact on many South African households.
“Interest rate increases also increase the cost of borrowing for consumers, making it more difficult for them to repay debt,” Nel said.
“These increases have a substantial and tangible effect on the average South African’s pocket, with credit card debt being a primary burden and a cause for concern in a country laden with debt.“
Along with interest rates other factors are also putting pressure on consumers including a cost-of-living crisis and looming global recession.
Here are tips to help you manage your finances despite rising interest rates:
Start saving
Nel said: “While all these factors make it more difficult to put money away, we should not underestimate the importance and value of saving money, especially when even tougher times lie ahead.”
You can put the money away in an emergency fund that can be used for unforeseen expenses.
According to Tyrone Lowther, head of Budget Insurance, it’s recommended that you have three to six months’ worth of expenses saved up in your emergency fund.
“Start by saving a small amount each month. Commit - don’t withdraw anything from this fund unless it’s a crisis,” Lowther said.
Speak to a financial adviser
Nel said that financial advisers understand your financial goals and can develop financial plans to align with your unique financial circumstances.
“Staying informed and getting the right advice – from an accredited financial adviser – can help you make sound decisions, aiding you on your journey to financial success, even in challenging times,” Nel said.
Draft a budget plan
According to Charnel Collins, CEO at National Debt Advisors, creating a budget will allow people to track their spending so they can see where their money is going.
The first step to starting a budget is knowing how much money is coming into your household including your spouse and other streams of income.
The create three columns for:
– fixed expenses such as rent/bond, levies, school fees, car payments, insurance and bank fees.
– discretionary expenses including entertainment, fuel, clothing, data. toiletries and transport.
– savings: money that you are putting aside towards a savings goal.
It is important that you stay committed to sticking to your budget plan if you want to reap the rewards in the long run.
IOL Business