Cape Town - You don’t need to be a financial expert to see that 2016 is going to be a tough year.
From a weak rand, to droughts affecting our crops and looming electricity hikes, consumers are looking at the future through clenched teeth. It’s time for all South Africans to tighten their belts, cautions authorised financial planner Marc Joubert.
With this potentially turbulent time ahead what happens when you receive an unexpected bill? Whether it’s a burst car tyre or an unpleasant visit to the hospital, emergencies are often expensive and can cripple your budget for a number of months ahead.
Here are some tips to help you budget for those unexpected bills in financially tough times:
Identify exactly what you’re liable for
With any surprise expense, consumers tend to rush and pay the entire bill before reviewing the costs.
“When my clients present their expenses to me, I can often find at least one questionable item on the bill,” says Joubert. “Being able to just take the time to review your itemised list will often reveal costs that you can query and get reserved.” Reviewing your bills thoroughly will often turn up sneaky costs that you can simply send back to the creditor.
Sell investments or items
“Clients of mine often have short term savings in fixed interest portfolios,” says Joubert. “If the bill is a large one, I would recommend disinvesting this easily liquidated capital before engaging in a credit agreement. 2016 is the year South Africans should avoid debt at all costs.”
For those without large financial portfolios, selling current assets is your best path forward to address those unexpected expenses, in his view. Whether it’s selling your car and downgrading, or even taking an inventory of items around the house, it is always best to have some money saved up to pay those unexpected bills.
Rethink your current credit agreements
South Africans are heavily reliant on debt to finance large purchases. According to a study conducted by the World Bank back in 2014 SA was the country most depended on credit. With the repo rate increasing twice in two months, this trend needs to change, in the view of Rob Katzen, CEO of Teljoy Group, a rent-to-own (RTO) specialist.
"Take the time to review your contracts and consider alternatives like rent-to-own."
“RTO is a rental agreement which helps the consumer avoid debt by providing financial flexibility and a fixed monthly fee that is unaffected by the interest rate increases,” explains Katzen.
“The flexibility that RTO offers becomes extremely useful when you are faced with a sudden unexpected bill. You have the option of cancelling the agreement, with a 30 day notice period and you get peace of mind knowing that your appliances are protected against things like lightning damage and even theft.”
According to Joubert, it should be on most South Africans’ to-do lists to review their contracts. Insurance premiums can be reduced on a year-to-year basis as current assets depreciate annually, reducing your monthly installment fees lower.
Create an unexpected bill account
This is the perfect time to create an extra account to generate a large lump sum to pay off bills in the future, according to Joubert.
“The first piece of advice I tell my clients is to save, whether it’s to address large debt, pay a bill, being able to pay up in full is the best solution,” he says. “The amount you put away is dependent on your financial situation, but what ever you do start as soon as possible.”
Ask for help from a professional
If you feel that your financial situation has gotten out of control, it’s important that you seek help sooner rather than later.
“When clients I am helping have sat on the situation for too long, the expenses they needed to address have normally escalated significantly from the original cost,” says Joubert.
"Agencies like the National Credit Regulators (NCR) are open to the public once a year, for free, to address issues with debt. Taking advice from professional financial experts will mean that you can pay for large, and unexpected bills, with a solution that is tailored to your monetary situation."
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