With the cost of credit skyrocketing, consumers are warned to watch their spending ahead of the Black Friday frenzy to avoid financial ruin.
At its last meeting of the year which concluded on Thursday, the SA Reserve Bank’s (SARB) Monetary Policy Committee raised the benchmark repo rate by 75 basis points to 7%. The MPC decision to hike the repo rate means the prime lending rate will now be increased to 10.50% in November from 9.75%.
The repo rate is the interest rate at which the Reserve Bank lends money to commercial banking groups.
An increase in the repo rate has influenced the prime lending rate that commercial banks charge when they lend to their clients.
SARB has had to contend with runaway inflation for several months with the October inflation print coming in at 7.6%, which is above the central bank’s target band of 3% to 6%. Inflation in South Africa has breached the upper limit (6%) of the central bank’s target range for six consecutive months.
The staggering hikes in inflation and repo rates are likely to cause panic buying during the Black Friday frenzy. However, now is not the time to panic, according to Lee Hancox, who said consumers need to utilize this time to restructure their finances.
Hancox is the Head of Channel and Segment Marketing at Sanlam and a Certified Financial Planner.
Hancox said the hike is likely to place cash-crunched consumers under even more pressure while posing a threat to those who may have had “a bit of breathing room in their budget a year ago”.
“Absorbing a further 75 basis points, even for those who don’t have a large amount of debt, has a significant impact on your disposable income.”
Black Friday is not the only threat, with it comes the festive season which also poses a big threat to finances. Hancox has strongly warned that consumers be wary of sales temptations during these intervals. She said consumers need to spend less time worrying and focus on reworking their budget “from scratch” by evaluating every item listed.
“Ask yourself if you really need the item. Unless you have the cash to pay for it, buying items on a credit card can end up costing you more than the original price, never mind the sale price,” she said.
Proper planning and making small changes can make a big difference.
Hancox shares ideas on how to stabilise your finances:
- Reassess and set SMART financial goals and set your priorities straight. It is advisable to get the service of a financial advisor to assist with understanding and managing your finances.
- Draw your budget and stick to it. “Remember to factor in those day-to-day expenses that add up. Other steps can include planning a proper grocery shop instead of buying a few items here and there and being strict on non-essential items.”
Use your bank statement to guide you through evaluating your spending. Cut back on unused subscriptions, and the number of times you eat out or buy takeaways.
- Acquire an emergency fund. “One thing the Covid-19 pandemic taught us was the importance of having an emergency fund. These are savings that you can use for unforeseen expenses that you cannot budget for, such as if your car breaks down,” said Hancox.
- Honour your commitments and pay your bills on time to avoid late payment penalties.
- Stay away from your retirement savings. “Don’t be tempted to cancel or decrease your retirement savings or life cover contributions. This is a big decision with long-term consequences, so it’s important to discuss this with your financial adviser to ensure you’ve considered all your options.”
To avoid temptations, consult with your trusted financial adviser to drive you towards financial confidence and assist you with articulating your goals and planning in place to achieve them.
“Many of us grew up in households where our parents didn’t talk about money, leaving us a bit weary to talk to somebody else about it. Whether you earn a lot or a little, we all have goals for ourselves, our children, and our families. Financial planning is about empowering people to make the best financial decisions based on what they have, and the circumstances that they are in,” concluded Hancox.
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