The Finance Minister called it a tough budget. Tough because of the need to balance income received from taxes with the government’s obligations to South Africans and to pay off its international debt. Increased VAT and fuel costs will also make it tough for households trying to make ends meet.
Although there’s nothing you can do about VAT at 15% and a 52c per litre fuel increase there are some lessons from the 2018 budget that are as relevant to your day-to-day financial well-being as they are to the country’s economy.
Here are three lessons financial services provider, DirectAxis has drawn from the 2018 budget:
1. Consider your credit rating
One of the reasons the 2018 budget was so tough is that all but one of the international ratings agencies have downgraded South Africa to ‘junk’ or sub-investment grade. If the Minister is not able to convince the last one that the country should not be downgraded, South Africa will find it harder to borrow money internationally and will pay more interest.
Exactly the same principle applies to your finances. If you’re living beyond your means and have more debt than you can afford to repay, it will affect your credit score. A poor credit score will mean that you could struggle to get a loan or open an account. It could also mean that if you do, you’ll be charged a higher interest rate.
By law, you are entitled to one free credit report a year, but these can be difficult to understand and only checking your score annually may not be enough. There are free online tools such as DirectAxis Pulse https://www.directaxis.co.za/pulse which allow you to check your credit rating as often as you like and provide information on how you can improve it.
2. Cut your costs
Despite what you might think government’s ability to grow income by increasing taxes is limited. Not only do higher individual taxes make governments unpopular and more likely to be voted out of power, but increasing corporate taxes can limit economic growth. The other way to make up a shortfall in income versus expenditure, called the budget deficit, is to reduce government spending.
Your ability to increase your income is probably also limited and cutting your spending is easier said than done. Just as government can’t cut some expenses, such as social grants, because some people rely on these to survive, so there are some household expenses such as food, rent or rates that you can’t avoid.
But there are plenty of areas where government can reduce wasteful expenditure. Similarly, there may be some personal expenses you can limit. These may include entertainment or buying clothes you don’t really need.
3. Think ahead
Although considered controversial by some, government’s decision to provide R57 billion for fee-free higher education for students from households earning less than R350 000 is being positioned as an investment in the future. The argument is that South Africa will need educated graduates to keep growing its economy.
When considering your household finances think about where you want to be in a year, two years and five years’ time. This will help inform the decisions you make today. For example, if you’re planning to further your education you might need to start saving or ensure you have a good credit record so you can get a loan. Alternatively, you may want to move out of rented accommodation and buy your own house. The same considerations apply – you’ll need to save up for a deposit and have a credit record that enables you to get a home loan.
“The huge numbers and complexity of the national budget may make it seem a world apart from your household budget, but the underlying principles are the same,” says DirectAxis head of marketing Marlies Kappers.
“By understanding some of the basics such as what your credit rating is, what you can do to balance income and expenditure and thinking about where you want to be in the future, you can start to take control of your finances rather than be controlled by them.”