How you can manage your money during a cost of living crisis

Across the country, South Africans are struggling to make it to the end of the month because of rising costs. In the last year, we've had to deal with several consecutive interest rate increases, fuel hikes and an increase of food prices. In this blog post we'll unpack:

• 4 Reasons why the same salary you've had for the last year just can't seem to stretch as far.
• How the cost of living crisis is forcing consumers even further into debt.
• 5 Tips to help you make your money go further and ensure it's managed well.

What are the factors contributing to the increased cost of living?

In an article published by News24, a journalist highlighted 4 main factors contributing to the current cost of living crisis: food, electricity, interest rates and petrol.

1. Food prices in South Africa

Below is an overview of statistics based on the Household affordability index report by the Pietermaritzburg Economic Justice & Dignity Group:

*The food basket is made up of 44 foods and is based on what women from a low-income household buy. 

The average cost of a food basket in South Africa according to the report is R4 928,34. 

A closer look at the food prices across the country:

On average, that’s an increase of R572,64 since last year. 

South Africans have even taken to social media to share how they can make their budget stretch with weekly shopping hauls from well-known retailers in South Africa.

2. Increase of home loans and personal loans 

With the increase of the repo rate comes an increase of the prime lending rate. The prime lending rate is the benchmark interest rate at which banks loan money to consumers. At the time of writing this blog post, the prime lending rate is 10.75%.

What this means for you as a consumer is that, since January 2022 when the prime lending rate was 7.5%, it has increased by 3.25%. 

In more practical terms, if you have a bond of R1 000 000 taken over 20 years with an interest rate on the loan at prime, you could now be paying R10 152 for your bond. 

Since November 2022, that’s an increase of R168. 

While this might not seem that significant, if you look at the consistent increases of the repo and prime lending rate in the last year, you can easily see how this adds up. 

For context, the repo rate at the beginning of 2022 was 3.75%, it is now 7.25%. 

An increase of the prime lending rate will also mean an increase of your car loan. 

3. Petrol

In January 2022, the price of 95 petrol inland was R19,61 per litre. The price of diesel (0,05- wholesale) was R17,24. 

In March 2023, the price of 95 petrol inland is currently R22,95 per litre and the price of diesel (0,05 - wholesale) is currently R21,63 per litre. 

This means that you could currently be paying R3,34 more per litre for 95 petrol and an extra R4,39 per litre for diesel. 

4. Electricity

At the beginning of  2023,  the National  Energy Regulator of South Africa (Nersa) approved a tariff hike from Eskom of 18.65%.

Not only will this have a direct negative impact on a consumer’s budget because they will have to fork out more money to supply their households with electricity, it could also have indirect impacts because businesses will need to accommodate for these costs and may pass on these price pressures to their goods and services. 

Did you know: 18.9% of the South African population lives on less than R28 per day. 

South Africans are relying on credit to afford essentials 

More than 27 million people in South Africa make use of formally recognised credit services. Of this 27 million people, more than 50% are considered over-indebted. 

According to the Financial Outlook Study 2022:

• 43% of credit active consumers in South Africa used credit to buy groceries and

• 11% to buy clothing and pay bills (debt). 

A staggering 95% of low-income individuals used credit (debt) to afford basic needs such as food, clothing, transport and bills. 

This reality is echoed even at the upper-end of incomes where Woolworths financial services (credit card and store card offering), saw the biggest turnover growth, with a year-on-year increase of 17.2% in December 2022.

If you are relying on debt to pay for essential items like groceries and electricity, we can help you make your money go further. We can reduce your monthly debt repayments by up to 50%.

How can you and your family make your money go further?

1.Create a budget and stick to it. 

Creating a budget is essential to learning how to live within your means and make your salary further. Amidst the rising prices of food, fuel and electricity, it is worth checking not only the amount of money you're currently spending on your expenses, but where you can cut down too.

A budget can also be your tool to achieving your financial goals. Instead of being restrictive, it can offer you the framework you need to succeed, or more realistically, help you make it to the end of the month.

Read: How to start a budget in 6 simple steps

2. Cut down on unnecessary expenses.

Some examples of these expenses include: 

• • Subscriptions (Netflix, DSTV etc).

  • Gym membership

  • Trips to the salon or getting your nails done. 
    

    Important questions to ask yourself when considering where you can cut down are:

    1. How often do I make use of this?

    2. Is it worth the price I am paying?

    3. Is there a cheaper package I can take on instead?

    4. Can I do it on my own instead?

Read: 6 expenses you should cut down on to save money

3. Start saving towards an emergency savings fund. 

Unexpected financial emergencies will arise. The brakes on your car might need replacing, you may receive an unexpected SARS bill, your pet may require an operation, you may return home after a long day at work and find that your geyser has burst. 

Instead of taking out a loan or maxing out your credit card, you should have an emergency savings account. 

What is an emergency fund?

An emergency fund is an easily accessible sum of cash put aside to finance emergencies when they arise. 

Start saving with Meerkat from as little as R25 per month today. Sign up using this free and easy registration process. You won’t be charged any account fees and for every R100 you save, you could win R1000. 

4. Switch back to shopping in-store. 

While shopping using an application is very convenient, especially when it comes to groceries being delivered to your door, oftentimes these prices are inflated and you usually have to pay for delivery too.

5. Buy only what you can afford and live within your means

“Spending money to show how much money you have is the fastest way to have less money” - Morgan Housel

It can be very tempting to buy on credit to afford things that you want, but don’t really need. A quick look around at all the flashy cars on South African roads is not necessarily an indication of the wealth, but rather, all the debt.

The best thing you can do for your financial future is live within your means and reduce, as much as you are able to, your reliance on credit.

If you really aren’t able to cope without relying on credit to get you through the month, there is a way out. There is light at the end of what may seem like a never-ending dark tunnel. Debt counselling is not a life sentence, it is your opportunity to start living your life again. 

Read: A young family went from over-indebted to debt-free thanks to debt counselling at Meerkat