Surviving the Squeeze
Are You Starting to Struggle to make it to Month end?
Every one is struggling to make ends meet these days. Times are tough and things are getting more and more expensive. It feels like our salaries never keep up.
Many stressed consumers have wisely turned to debt review instead of digging themselves further into debt and are slowly paying off what they owe with the goal of becoming debt free. That’s very clever. Getting professional help to rework your budget and negotiate manageable debt repayments is a great idea.
But what happens if you are already in debt review and are starting to find it hard to make it to the end of the month on your budget?
Budgets – Not Fun But Very Necessary
When you begin the process of Debt Review, your Debt Counsellor will assist you in creating a budget that aligns with your specific needs at that time.
This budget takes into consideration both your income and your debt obligations. It’s crucial to work closely with your Debt Counsellor to accurately assess your financial situation and ensure that the budget reflects your current circumstances. By doing so, you can lay the foundation for effective financial management throughout the Debt Review process.
This budget will be included in your draft court order and your credit providers will be told how you are going to sustainably manage your monthly living costs. They are particularly happy when they see you cut out any luxuries in order to focus on paying off your debts.
A realistic and sustainable budget can ensure debt review success. Many times, this adjusted budget will now include things you had cut out before such as saving funds towards annual costs and necessary insurances.
Salary Increases and Bonuses – You Must Be Dreaming
The global and local economic landscape, in the wake of the pandemic and ongoing load shedding, have contributed to this challenging situation where many South Africans have been given tiny or even non existent salary increases.
Bonuses seem a far distant memory these days.
Many industries have faced financial constraints, prompting employers to limit wage growth to the absolute bare minimum. In some cases, companies have struggled to give even these modest salary increases due to the sluggish economy and ever increasing operating costs.
In some sectors, workers have resorted to strikes and walkouts because they are so frustrated by the lack of decent wage increases.
You may find that due to these smaller than hoped for increases your expenses are now beginning to outstrip your ability to keep up.
Inflation's Impact on Your Spending Power
Inflation is a term used to describe the general increase in prices for goods and services over time.
It’s important to note that inflation can erode your spending power, meaning that the same amount of money will buy you less than it used to.
For example, one Debt Counselling firm suggests that due to inflation, your buying power may have decreased by around 40% over the last five years. This means that the cost of living has increased significantly faster than your income, making it more challenging to keep making your debt review payments and afford the necessities.
If you have gone to the shop with a particular target in mind and bought all your usual items and then found the bill is higher than expected, you are experiencing this first hand. And the price of necessary goods, services and food all go up over time. International events like war, political upheaval and rising fuel costs can all impact on how much you end up paying when you get to the till.
The Importance of Saving for Unexpected Expenses
While trying to make ends meet, it’s vital to prioritize paying your Debt Review instalment in full and on time.
Failing to do so can lead to dissatisfaction among credit providers, who may even threaten to leave the debt review (in terms of NCA Section 86(10)).
‘it’s always wise to try and save some funds towards unexpected expenses, such as medical bills, pet related costs, or insurance excesses’
Also, it’s always wise to try and save some funds towards unexpected expenses, such as medical bills, pet related costs, or insurance excesses. By saving for such contingencies, you can avoid being caught off guard by unforeseen financial burdens and ensure you don’t fall out of your debt review journey.
The Benefits of Debt Review
Sticking with the debt review process offers significant advantages that should far outweigh any temptation to abandon it before all your debt is paid up.
During debt review you are probably benefiting from smaller manageable monthly instalments, lower interest rates and not having to pay annual and monthly account fees. All that provides you with massive savings over time and the ability to make it through the month and still reduce your debt.
It’s crucial not to voluntarily leave the process without paying off your debts. By continuing with debt review, you safeguard the progress you’ve already made, ensuring that your efforts to regain financial stability are not in vain.
Conversely, if you drop out, you risk losing all the benefits you’ve accrued thus far, and credit providers might take legal action against your assets. The importance of staying the course and making necessary adjustments cannot be overstated.
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Reviewing and Adjusting Your Budget
When was the last time you reviewed your budget?
Is it still realistic and up to date, or are you relying on outdated figures? Changes in living expenses, such as increases in electricity and fuel costs, can render your previous budget inaccurate if you haven’t made the necessary adjustments.
It’s important to occasionally reevaluate your spending habits and identify any unnecessary expenses that have re-entered your routine. Over time, comfort zone spending can undermine your previous determination to make it to the end of the month.
Remember when you first entered debt review and how strict you were? Well, you may have started to be a bit easy on yourself and extra costs can creep in (eg. you start paying more for data or entertainment).
Small, Medium or Large?
If you have been struggling to make it to the month end you may need to make some spending adjustments. How serious the problem is will relate to how big the changes have to be.
As we have seen over time your income has probably not grown as much as your expenses have so as more time goes b the bigger the changes may be needed. This is why making a series of smaller changes over time (like each year) is preferable. It is less of a shock to the system.
Regardless, you may now have to assess your situation.
Step 1 is to look and see if you are managing to set funds aside each month towards annual expenses. If not, then you need to make a change to get that back on track.
Maybe small changes will make a difference. Can you try switching to more cost effective shopping habits, such as using shopping lists, exploring online shopping options, or joining social media groups that share tips and deals?
Can you speak to your broker about adjustments to insurance or comparative quotes? It might be a while since you did that?
These small adjustments could be all it takes to get back on track.
Medium changes might involve finding ways to increase your income. Explore the possibility of starting a side hustle or consider taking on a tenant or even carpooling to reduce transportation costs. If you need some capital to get your side hustle started think about what assets you can sell to build up a start up fund.
Adjusting your schedule to travel less or exploring work from home options can also help. Though not easy these changes can dramatically shift your spending and income. But you need to start making plans and implementing them without delay.
If your situation is much more serious then your solutions need to be more serious and far reaching. Don’t fall prey to wishful thinking. Do something drastic about it.
‘Big problems call for big solutions’
You may need to consider major changes, such as changing employment, having another family member start working part time to contribute to income, or downsizing your accommodation to significantly reduce expenses.
Big problems call for big solutions. Talk to your Debt Counsellor about some of the options open to you.
Monitor and Adjust Your Budget To Stay On Track
Regularly monitoring your income, current expenses and monthly budget is essential for making it successfully through the debt review process.
If you start having problems saving or even buying all that you need each month then you must make adjustments sooner rather than later.
Set aside time at least once a year to review your finances and discuss your situation with your Debt Counsellor.
If you find yourself struggling to make ends meet based on your current budget, proactively assess whether you need to make small, medium, or large changes, just as you did when you initially started debt review.
Even if you’re currently managing, it’s wise to project ahead and identify potential difficulties. By making early adjustments, you can continue saving for unexpected expenses and promptly address any emerging issues.
Sticking with the debt review process is worthwhile, especially if you’ve been actively involved for several years. Don’t allow setbacks to undo the amazing progress you’ve made.
By being proactive, flexible, and remaining open to making necessary adjustments, you can overcome challenges, afford your monthly bills, and ultimately achieve your goal of becoming debt free.