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Reconciling the National Budget with Your Own

19 February 2019

How the upcoming Budget Policy Statement can provide relief and what you can do to stay afloat.

High unemployment and rising fuel, electricity and water costs are just some of the reasons we’re having a tough time financially, says Kenosi Magosha, Head of Client Solutions Savings at Sanlam Personal Finance. Further to that, she cites the South African Reserve Bank report, which in 2018 said the increases in taxes put pressure on consumer spending.

Magosha adds that matters beyond our borders, such as the US and China trade wars and increases in US interest rates, which diverted investment from emerging markets also contribute to our low economic growth and inability to save.

“Times are tough, but now is not the time for dread. Instead, we need to tighten our proverbial belts and the first step towards this is to be more mindful of our spending.”

She adds, “Anticipated news in the 2019 Budget on some relief and planned expenditure to incentivise the creation of new businesses and jobs could offer us a glimmer of hope, but a bit of the work will be our own to reconcile that with our individual and household budgets.”

Balancing Act

Speaking ahead of the Budget speech on Wednesday, Magosha says minister Mboweni will need to strike a delicate balance between not putting further pressure on strained household finances and efforts to raise revenue to safeguard the country’s credit rating whilst pursuing economic growth.

Individually, she says we’ll also need to find a safe balance between meeting all our expenses without compromising our savings. Magosha says the first step here is to chat to a qualified financial adviser about putting a solid plan together and helping you break that down into monthly budgets.

Raising Revenue

Magosha says the Minister may not have enough room to leverage the three major contributors to revenue: personal income taxes, corporate tax and VAT. However, other taxes which impact consumer pockets, such as sin taxes, will likely increase given the tough stance the president took in the SONA on substance abuse.

For consumers, she says the bid to raise income could mean taking on a side hustle or being more frugal. “You could do some piece jobs around your community or network, or start taking coffee from home, getting into DIY for any house renovations, taking advantage of any zero-tax rating on necessities and using loyalty rewards to cut down on actual spend”.

Keeping the Lights On

For the benefit of our finances and sentiment, Magosha says it will be important for the Minister to address concerns around the government’s rescue plan for Eskom and specifically, whether these are likely to involve an increase in electricity costs or if other funding models leveraging corporates will be pursued.

“Unfortunately, on a personal level, the way out of debt involves no government rescue, though, you can mirror the governments’ strategy to manage debt. This means managing the cost and the amount of debt. You would need to ensure you don’t borrow for consumption and that you split your current debt into three buckets – high interest, medium interest, and low interest. You want to address your most expensive debt first. This means that while steadily paying off your university debt and home/ car loans, you need to move towards quickly closing all of your store accounts and settling your credit card which usually have higher interest rates”.

Incentives to Encourage Saving

Magosha says it will be interesting to see if there are any additional ‘carrots’ to encourage more savings – such as increases in tax-free saving accounts contribution limits.

Personally, this means a few, planned and inexpensive rewards to pat yourself on the back for taking charge of your finances. “At the end of the day, we budget so that we are able to enjoy our money – this doesn’t have to be an expensive, and unbudgeted trip to Thailand. It could be a cheaper, planned short left, or maybe a night out at the movies complete with popcorn and all the trimmings, using the benefits form your loyalty programme.”

Sanlam Life Insurance is a licensed financial service provider.
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