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Latest petrol hike to hit consumer’s wallets

02 April 2013 Jason Garner, Acsis
Jason Garner of Acsis

Jason Garner of Acsis

Consumers have been feeling more of a pinch lately when it comes to allocating their monthly income due to continuous rising costs. According to Jason Garner of Acsis, a leading financial advisory company, the latest petrol and electricity increases will

He says that the cost of living has risen considerably over the past few years and will likely continue to affect consumers’ wallets given the recent increases.

Garner says that with the petrol price increase of 12 cents per litre on Wednesday, this following a 41 and 81 cents increase in February and March respectively, and the 8% increase in electricity tariffs, most consumers’ savings and debt levels will take a knock in the upcoming months. “Unfortunately a petrol price increase results in a knock-on effect on the price of most goods and services, such as food and public transport, which is utilised by a large portion of South Africans.

“With the Reserve Bank reporting that the household debt to income ratio was 76% in the third quarter of 2012, it is obvious that consumers are already struggling with high debt levels. The recently announced petrol and electricity increases will only worsen the situation if consumers do not factor these increases into their budgets. Not only is the cost of living increasing, but this, coupled with additional monthly expenses, such as medical aid, mortgage repayments and school fees means that more consumers are increasingly turning to credit to fund their lifestyles and in turn, find themselves in debt.”

Garners says that recent figures reflect how consumers are battling with their financial wellbeing and as a result, are having to place themselves in an unhealthy debt situation in order to cover their monthly costs.

According to the 4th quarter 2012 Consumer Credit Market Report, unsecured credit agreements increased by 11.94% in the fourth quarter and short-term credit showed a quarter-on-quarter increase of 27.22%. While the TransUnion SA Consumer Index (CCI) revealed that in South Africa consumer credit health, which is the ability of consumers to service existing credit obligations within the constraints of monthly household budgets, had decreased to 44.4 in Q1 of 2013, thereby highlighting the deteriorating situation due to rising pressures on household cash flows and budget.

While the announcement of a personal income tax relief of R7 billion by Minister of Finance, Pravin Gordan in his 2013 Budget Speech may have come as a relief to consumers, Garner says that this can might be misleading to consumers as after inflation, consumers are actually slightly worse off than the year before. “For example, the average increase in medical aid cost ranged between 7.9% and 11.9% for 2012. With the Consumer Price Inflation (CPI) currently at 5.6% year on year and the finance minister allowing just a 5.2% increase in tax credits for medical aid contributions, it is easy to see that the disparity between tax relief and actual inflation in the hands of consumers is widening year by year. While this example is isolated, most of the adjustments in the budget simply won’t assist the average person on the street to close the gap between costs and income.”

He says that these increasing living costs highlight the need for consumers to spend frugally and ensure that they have effective financial planning strategies in place. “It is important that in light of these increases, consumers improve their ability to spend within their means and save accordingly in order to cope financially without having to rely on credit cards, overdrafts or any other form of debt.

Garner adds that in order to factor in the increased cost of living, consumers need to adjust their spending habits to reduce expenses. “This period of change in the national budget is a perfect opportunity for consumers to re-look at where they are spending their money. In order to identify where funds are being spent, and on what, consumers should breaking their spending into three basic categories, namely the must haves, the nice to haves and the luxury items.

“The ‘must haves’ include critical things such as groceries and rent. The ‘nice to haves’ include items that make consumers lives easier and more enjoyable, such as shopping at convenient shops and entertainment. The ‘luxury items’ include costs that don’t need to be spent, such as buying a new car and luxurious clothing.”

He adds that once these costs have been totalled, consumers need to check their expenses bill against their income. “If consumers find that there is a shortfall or that they are just keeping afloat financially, some adjustments need to be made. In order to do this, consumers should go back to the three main categories and see where they need to start cutting back. First look at the luxury items, then the ‘nice to haves’ and lastly the ‘must haves’ list. The key here is to reduce the amount that is used. For example, if you like chocolate, don’t stop buying it all together, rather reduce the number of chocolates you buy.

“If however there is a surplus at the end of each month, it is crucial that consumers don’t spend more, but instead start a savings plan so that they can start building financial independence,” concludes Garner.

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