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Quick tips – how to budget during high-inflation

Quick tips – how to budget during high-inflation
The average South African is under immense economic stress, making financial planning is vital. Image: Towfiqu Barbhuia / Unsplash

Maverick Life speaks to a financial advisor on how you can better manage your budget during inflation.

Inflation, defined by the International Monetary Fund as “the rate of increase in prices over a given period of time”,  might affect South Africans differently than in countries such as the US. Indeed, Devon Card, a certified financial planner at Crue Invest in Cape Town, explains that while the concept of inflation is the same globally, South Africa usually does not reap its potential benefits (consistent, low inflation) because of our struggling economy. 

For example, Card notes that if wages usually increase to be on par with inflation, in South Africa the average wage has not been able to keep up due to how much our inflation rates increase. This has resulted in immense economic stress for the average South African, and inflation’s unpredictability has made it difficult to plan and adapt accordingly. 

Keep track of how you spend your money

“Having a budget and regularly checking in on it are two different things,” says Card. While having a budget in the first place is an absolute must, checking it and tracking your purchases are even more important. 

Watch how you spend your money and what you spend it on. Try to pick up on spending habits and evaluate them. For large expenses such as bond repayments, it is preferable not to commit to the first option presented to you; instead, shop around and compare – and this can be applied to expenses such as car loans or insurance as well. “Even a small decrease in rate will result in you freeing up some disposable monthly income,” says Card.

If you need to cut down on expenses, cut strategically – don’t remove essentials from your budget just because they aren’t needed immediately. Start from the smaller things to the larger items. It may sound like common sense, but asking questions like “what can you absolutely live without?” and “what is essential?” are crucial to build a healthy budget (your medical aid and gap cover, as well as life and disability insurance if you have such covers, can be tempting to cut out because they don’t feel like they are for imminent use; but in the long run they might make a huge difference). 

Your entertainment budget ultimately has the most wiggle room: look at your spending on socialising, eating out and unnecessary subscriptions. Food and clothing costs are a middle ground where there is space to make cuts, although this will be based on your personal needs.

Have an emergency fund 

While it is almost impossible to prepare for high inflation, you can be proactive and slowly build an emergency fund. This should be your security blanket and help you during the times where a high-inflation period may require extra funds outside of your salary. “Your emergency fund should be seen as your ‘peaceful night’s sleep’,” says Card. 

Having this fund can also save you from creating more debt, which can save you financially in the short and long term. It can also make the transition between inflation rates easier and give you more time to plan your next financial move. 

Read more in Daily Maverick: “Here’s how and why you should create an emergency fund” 

Put your budget to the test – take it for a spin 

The best way to see if your budget works is to put it under a stress test. Run through different scenarios to help gain clarity on what you realistically need and what you can do without. This should give you the knowledge to make faster financial decisions when inflation peaks. 

“Running various scenarios of high inflation will help test your budget and help categorise your budget into the essentials, non-essentials and luxuries,” says Card. Taking heed of Card’s tips, keep in mind that your budget needs to fit your lifestyle, so be malleable and open to change. DM/ML

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