Many families are turning to high-interest debt to survive, which could lead to long-term financial strain
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The cost of living in South Africa is accelerating at an alarming pace, with inflation jumping to 4.5% in May 2026 – the highest rate since July 2024.
The financial pressure will increase if the South African Reserve Bank (Sarb) decides to raise interest rates after the latest 25bps hike, making the cost of borrowing even higher.
Haydn Johns, head of PSG Life and PSG Invest at PSG Wealth, says to stay afloat, many South African households are prioritising essentials such as food, transport and electricity, while cutting back on discretionary spending like holidays and luxury goods.
Households turning to debt
Many families are also turning to high-interest debt to survive, which risks long-term financial strain.
This, along with withdrawing from long-term investments or retirement savings to cover short-term gaps, is among the most common mistakes during periods of economic pressure, says Johns. Both decisions undermine future prosperity and leave households more vulnerable over time.
“In this inflationary environment, it is critical to distinguish between reactive cost-cutting and a more structured approach to managing finance,” he says. “Reactive cost-cutting involves trimming expenses in the moment without a long-term plan, which can leave households vulnerable when unexpected costs arise.”
5 tips to survive during difficult times
1. Build an emergency fund: A good rule of thumb is to save the equivalent of six months of living expenses. This helps households manage unexpected costs without dipping into retirement savings or long-term investments
2. Avoid unnecessary debt: It can be tempting to take on the maximum credit offered for large purchases like a home loan, but by borrowing conservatively, households create a buffer that protects them if circumstances change.
3. Automate savings and retirement contributions: By automating the minimum contributions through debit orders, households can ensure that their long-term goals remain on track.
4. Keep your lifestyle in check: Lifestyle inflation, where expenses rise in line with income, remains a major risk to long-term progress. To counter this, savings and investment contributions should increase at a rate that outpaces inflation whenever income rises.
5. Be strategic with bonuses and tax refunds: Fixed expenses such as bond or car repayments do not escalate in the same way as earnings, creating an opportunity to channel additional income into building wealth. Windfalls such as bonuses or tax refunds should be treated strategically, with at least 80% allocated to long-term savings rather than lifestyle upgrades.
Saving remains key
Johns emphasises that good financial habits begin with saving first and spending what remains, rather than the other way around.
This requires disciplined budgeting, tracking actual spending against planned allocations and regularly reassessing non-essential expenses.
“Financial resilience ultimately depends as much on mindset as it does on income. While income is an important input, it is not the sole determinant of financial success.”
