Will the latest repo rate cut save already cash-strapped consumers?

The South African Reserve Bank (SARB) Monetary Policy Committee (MPC) announced another rate cut of 25 basis point rate this week, which most economists predicted.

This comes after the SARB has already cut rates to 275 basis points so far this year in an attempt to assist cash strapped consumers.

According to the latest results from the Momentum/Unisa South African Household Wealth Index, which were released in May 2020, SA households lost an estimated R828.2 billion (expressed in real terms) from the fourth quarter of 2019 (Q4 2019) to the first quarter of 2020 (Q1 2020).

This is the biggest real quarterly loss since the start of measuring household wealth in 1993.

But what is a repo rate cute and what does it mean for your pocket?

A repo rate cut means banks will bring down their lending rate which translates into consumers paying lower interest rates on their debt, providing them with a bit of relief in this financial storm.

While the going is certainly tough and likely to get tougher, Janine Horn, financial planner at Momentum Financial Planning says that South Africans who are fortunate enough to have a measure of disposable income, can take steps to safeguard every single cent that they get.

“Life as we know it has changed, the environment and how we do things have changed. For an example, many fortunate South Africans are working from home, meaning they could be saving up on transportation money. Every single cent counts, and every saving in one’s budget should be channeled directly to a savings jar,” advises Horn.

Horn has five tips for cash strapped South Africans:

1. Unlearn old habits and patterns. The key to the start of your money journey and your unique personalised savings strategy is to unlearn old habits and patterns, rid yourself of the legacy of lack and undo fake definitions of societal pressures, labels and standards.

The money journey you adopt should be positive, filled with hope for your future and paved with educated disciplined methodologies. You alone can change your trajectory and build a warrior mentality and not a worrier norm. Challenge your mind-set.

2. Get your troops and have a team talk. This can be with your staff, partner, spouse, or children. They are all in your camp and have a role to play when it comes to readjusting the finances. Do the exercise of the household budget with them and decide together to reduce or not.

3. Use e-commerce shopping as this is more targeted to what you need (possibly a want) and allows you to compare retailers.

It also removes the unnecessary temptation of browsing as you usually use search functionality to bring up exactly what you are looking for.

4. Streamline your workflow and manage your household like a mean, sleek business machine.

Again, there are some wonderful tools available that can help with the household planning. One way to do this is to maximise tax efficient products such as the tax-free savings plans, retirement solutions or medical aid tax credits.

5. Utilise Covid-19 friendly solutions offered by product providers and banking institutions to help you manage the impact of the virus should you be affected. I implore you to negotiate, enquire and ask before you cancel your cover.

There is a massive concern with under insurability and over indebtedness in South Africa. Should you find yourself in such a position, know your rights and seek professional help.

“When in doubt, there are accredited financial advisers available at your fingertips to provide you with sound financial advice and help you re-map your finances,” said Horn.

Read: SARS is making major changes to the tax season – here’s what you need to double check and have in order before August

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