Your 2015 Finances in Perspective

2015 will continue to be a tough year for the consumer; it is time to batten down the hatches.

2014 was a fairly tough year which saw the collapse of a bank due to unhealthy credit levels, the longest strike in South African history in the platinum belt, the Rand under renewed pressure and the start of interest rate hikes. Unfortunately 2015 is not necessarily going to be any easier.

Weak growth expected in 2015

The economy continues to grow at a snail’s pace – with growth levels it is unlikely we will see much job creation. Although inflation remains under control allowing the Reserve Bank to keep interest rates on hold until around mid 2015, we still expect interest rates to rise later in the year.

Depletion of savings and absorption of credit in 2015

While middle to upper income households have been able to weather the economic downturn over the last few years by being able to negotiate higher salaries or change jobs, a far weaker economy in 2015 is going to make it more difficult. Most households have tapped out their savings and credit lines will be far more difficult to access after the fallout with the collapse of African Bank. Individuals are, in short, running out of places to find money to fund their lifestyle. Consumers should consider rearranging their spending to accommodate debt repayment and necessary household expenses.

Inflation factor in 2015

Although the official inflation rate is under 6%, a household’s real inflation rate could be far higher depending on their household expenditure and LSM grouping. Many expenses increase well above inflation including electricity, school fees and medical expenses while salary increases are expected to remain below 7%. The one bit of good news is that food and petrol prices are declining internationally which should be positive for the household budget in the course of 2015.

Debt repayments in 2015

Many households are also carrying the burden of debt which was taken during the high growth, low interest rate environment prior to 2008. When times are good it is hard to imagine that tough times will come and South Africans took advantage of the environment to increase overall debt levels relative to household income from around 53% in 2004 to 74% today. Unfortunately the tough times have now arrived and while one may regret the debts, they still need to be paid for.

With very little room to move households will have to make their pot of money go further in 2015:

Pay off debts

With interest rates set to remain stable or rise with each announcement by the SARB, you need to focus on paying off as much debt as possible and do NOT take on more credit!

Don’t blow your fuel saving

With the petrol price falling by 69c in December and further price decreases to follow make sure you do not absorb these savings into your monthly spending – international oil prices do fluctuates and there will come a time when the petrol price will rise again. Rather use these savings to pay off debt or allocate to an emergency fund.

Shop with purpose

The good news is that food prices are expected to weaken or at the very least not rise significantly. Your grocery money will stretch even further if you start shopping with purpose. For example, compare brands and buy your vegetables loose rather than in packets.

Find additional income

Rather than borrowing money, find ways to earn a bit of money on the side. Do you have a skill or a passion that you can turn into cash? Chopping wood is a great workout, if people say you have magic hands enroll for a massage course, use your car for a courier service and if you are good at getting concepts across consider tutoring students on the weekend. Even if it is just a couple of hundred rand a week, it will go a long way to easing financial stress.

* Article compliments of Sanelisiwe Gantsho, Liberty Economist