Revise your financial resolutions after rate hike
With the recent hike in financial rates, people should start to revise their financial resolutions.
Most of us start the New Year with hopes for a better year.
Some with a list of New Year’s resolutions and a smart few with a practical step-by-step plan for ensuring a better year.
These hopes, resolutions and plans inevitably include financial goals such as paying off debt, saving more or saving up for a dream.
“The South African Reserve Bank’s surprise interest rate hike of 0.5 per cent will certainly put a damper on many South Africans’ hopes, resolutions and plans for 2014,” comments Koos du Toit, CEO of P3 Investment Group.
“It will increase home loan repayments, vehicle finance instalments and the interest – and therefore the monthly repayments – on all short-term debts, such as credit cards, personal loans and retail accounts. More concerningly, some economists have warned that a rate hike could tip the economy into a recession.”
So what can consumers do to counter the impact of the rate hike on their plans for 2014? The P3 Investment Group offers some tips for revising your financial resolutions for 2014.
Firstly, one should draw up a budget or revise your budget, to factor in the impact of the interest rate hike. Ruthlessly cull unnecessary expenses to ensure that you can afford the necessities, such as bond repayments, vehicle finance installments and debt repayments, given the higher interest rate.
If you cannot afford all your repayments, take immediate action. Speak to your credit providers to make a repayment plan or contact a debt counsellor to assist you.
Secondly everyone should try and save. If you have culled your expenses to the minimum, save up any money you have left after covering the essential expenses, even if it is only R200 a month, to build up a reserve fund for unexpected emergencies, whether a medical emergency, or a vehicle or major appliance breakdown.
Thereafter, one should avoid making new debt at all costs. Do not open new credit facilities and do not buy anything on your existing credit facilities. The higher the interest rate, the more it costs you to borrow money and the higher the monthly repayments.
The higher interest rate means that your monthly debt repayments will increase. Make it an absolute priority to pay off your existing debt as fast as possible, starting with the highest interest rate debt first. Even a payment of just R100 a month extra on an account will help you pay it off much faster. Once one debt has been settled, use the monthly repayment you were paying on it to pay into the next debt as an extra payment each month. In this way, you can eradicate debt and the crippling interest on it from your life, much quicker than you imagine.
It is also wise to pay any extra money into your home loan once you have paid off your short-term, high interest rate debts, pay extra money into your home loan each month, not only to build up a buffer against future interest rate increases but also to ensure you save thousands of rands on interest and reduce the number years it will take to repay the loan.
Once you have your current financial situation under firm and tight control, take the time and make the effort to plan your financial future.
Decide what you want to achieve financially and set goals with timelines, for example, saving up for the kids’ education within 10 years or retiring at age 65 with a defined monthly income.
Then start looking for smart ways to reach your financial goals.
“For 10 years, the P3 Investment Group has helped thousands of ordinary salary-earning South Africans to attain financial freedom by empowering them to take control of their own financial situation and to make smart investment decisions. Don’t abandon your exciting New Year’s resolutions and inspiring dreams – take action to make them a reality,” says Koos.
“There is hope for financial freedom, for wealth and for getting the life you want, even in the face of an interest rate hike.”
