The cost of living, coupled with high interest rates, has led people to start living beyond their means and struggling to make ends meet.
Bertie Nel, head of Financial Planning and Advice at Momentum, said that when people live beyond their means, it could lead to spiralling debt which they feel is an impossible cycle to break free from.
“Using credit for everyday expenses such as groceries, fuel, and utilities might seem like a quick fix, but it provides only temporary relief and can have disastrous effects over the long term, especially in the face of rising interest rates,” Nel said.
Here are five ways you can break free from credit dependency:
Needs and wants
According to Farzana Botha, Segment Solutions Manager at Sanlam Savings, a need refers to something essential like your home or rent, while a want is a nice-to-have, like that daily morning cappuccino or a takeaway lunch at work.
Botha said that it is important that people realise the difference between a need and a want so they can plan for each accordingly.
“A good exercise is to scan last month’s bank statement and divide all your expenses into what you spent on a need and what you paid for a want,” Botha said.
Create a budget
Creating a budget will allow you to plan your spending so you can set aside money for essential expenses, including rent, utilities, food, and transport. Having a budget will help you avoid overspending and keep track of where your money is going.
Tyrone Lowther, head of Budget Insurance, said: “Whether you are trying to get out of debt, save some money, or simply stay in the green, a basic budget is one of the most underrated tools for gaining control of your finances, managing expenditures, saving, and avoiding debt.”
Build an emergency savings fund
Having an emergency fund can help you cover unexpected expenses that you may rely on credit for. People should have at least three to six months’ living expenses saved up in their emergency fund.
You can start small by putting away a small percentage of your income every month and increasing it as you go along.
“Involve your family members and make it a family goal to save for anything, from a family holiday to a new car,” Nel said.
Reduce unnecessary expenses
Take a look at your monthly expenses and see if you have any subscriptions that you can live without. Those seemingly small expenses can add up over time, so it is important that you cut back. Reducing your expenses will give you a significant margin for saving and a sense of control over your finances.
Improve your financial literacy
Rita Cool, a certified financial planner at Alexander Forbes, said that financial literacy is more than understanding how to work out a percentage; it is understanding how your finances impact your life.
To improve their financial literacy, people need to make use of the resources that are available. People can listen to trusted experts on podcasts, watch videos, read blogs, or consult with experts to expand their financial knowledge.