BULL’S EYE ADVICE ON HOW TO BEAT THE DEBT CHALLENGE
Step 4: Cut out unnecessary expenses and free up your income
Our grandmothers used to say, “A penny saved is a penny earned.” To many of us, this type of thinking might seem outdated and old-fashioned. After all, our grandparents were alive during the Depression and World War II, and in the post-war time of shortages and rationing. Since then, the baby boomers and later generations have become used to a better way of living, and in recent decades there has been an emphasis on enjoying ourselves and indulging in life’s luxuries. Unfortunately, desperate times call for desperate measures, and with world economies heading towards Depression-era lows perhaps it’s wise to follow grandma’s advice. We don’t have pennies any more but every rand saved eventually adds up.
We all value our leisure time, but you can save a lot of money by cutting out meals and drinks in restaurants and bars, trips to the movies and unnecessary driving (which uses petrol and devalues your car). Putting a strict limit on those little luxuries we all love – whether it’s a box of chocolates, a bottle of whisky or an overseas magazine – will also free up your wallet. These may sound like painful sacrifices to make, but remember this:
- They are temporary. You may be able to turn things around in a couple of months. Even if it’s a couple of years, they will be waiting for you when you can afford them again.
- It doesn’t mean you can’t have fun. Tough times, if anything, remind us to value the simple things in life, such as spending time with family and friends.
A total of 10-15% of your income can be saved using the following methods:
Learn to negotiate. You will be surprised how much you can save by simply negotiating prices, whether it’s with your bank manager (see p53) or in a shop. When making any substantial purchase, be sure to discuss the price with someone who has the authority to bargain with you. If your salesman is disinterested, ask to speak to the manager. Play hardball; be prepared to walk out of the shop if the price isn’t right. In tough times, everyone is keen to make a sale, even if it’s 10% below the asking price. The more you negotiate, the better you’ll get. At the very least, your skill will have improved next time you have to negotiate that new remuneration package with your boss.
Coordinate large purchases. Following on from the point above, you can negotiate better prices when buying more from the same shop. Use this tactic by coordinating important purchases – from running shoes to appliances to cars – either within your household or with family and friends. For example, if you and your brother are both in the market for a car, shop around together. Most car dealers will offer a substantial discount to make two sales at the same time, whether new or used.
(NB: Don’t take this as an excuse to spend money on unnecessary goods!)
Revise your insurance policies. Have a qualified financial advisor revisit your life- and health-insurance needs; you might not need as much life cover as you thought or you might get the same cover for a cheaper rate elsewhere. Financial institutions can make cover mandatory but cannot force you to take out this cover through them; you are entitled to shop around within the marketplace. But be aware of the advantages and disadvantages of cancelling and replacing your existing policies.
Similarly, shop around for cheaper short-term insurance, such as car and household insurance. Visit www.hippo.co.za to get a good idea of what’s out there. Rates have become a lot more competitive and most companies will drop their premiums by 10% or 15% if you simply phone them up and ask for a better price. They would rather earn less from you than nothing at all. Also, be aware of the depreciating value of your car and reduce the cover accordingly every year so that you are not over-insured.
Shop out of season. You can save hundreds of rands, on clothes in particular, by waiting for the right moments, such as post-Christmas and end-of-season sales. Avoid the buying pressure and look for the bargains. (NB: Again, don’t take this as an excuse to spend money on unnecessary goods!)
Buy second-hand. A brand-spanking-new car loses 20-30% of its value the minute you drive it off the showroom floor. Possibly a far better deal for your circumstances would be a good second-hand vehicle (see p58). Similarly, what’s wrong with a second-hand TV that does the job, especially if you know people who have fallen into the commercial trap of “upgrading” their perfectly functional set? Thousands of rand can be saved this way; just use your common sense.
Quit something. Almost all of us can save money by quitting something or cutting back heavily, be it smoking, drinking, chocolates or lottery tickets. For example, a pack-a-day smoking habit will set you back in the region of R9,000 a year. By quitting, you will save R90,000 over the course of ten years, assuming prices stay the same (which, of course, they won’t, given the annual obsession with “sin taxes”). To compound this idea, if you invest the money you save every month, at a modest return of 10%, that will jump up to nearly R155,000.
Use a carpool to get to work. In South Africa, we like the freedom and control of using our own cars, but a carpool makes a lot of sense. Our average daily commuting distance is 40km, mostly in traffic, which translates into a petrol cost of around R30 per day, or more than R7,000 per year – just for getting to work! By sharing with just one other person, you can halve this cost. Four people in the car and it drops below R2,000.
Shop smart 1. The trend of recent years to buy fresh ingredients on a regular basis is understandable, especially if you enjoy cooking, but it can have devastating effects on your grocery budget if you are not exceptionally disciplined. Follow these tips to avoid the pitfalls of frequent food trips:
- Limit any of these regular shopping trips to perishable foods only: bread, milk, fruit and supper ingredients. Don’t be tempted by impulse purchases such as sweets or cold drinks. Even household goods such as washing-up liquid or black bags are dangerous; buy one extra item and you’ll buy five.
- Buy everything else – canned, frozen and dried foods, household cleaners, bathroom products etc – in pre-planned fortnightly or monthly shopping trips to your supermarket or hypermarket. Write out a list beforehand and stick to the list.
- Where possible, plan your meals in advance so you know exactly what you need from your bulk shop initially, and then from the smaller shopping trips nearer the time.
- Avoid convenience stores and garage shops altogether. You pay for the convenience; these stores typically charge 10-15% more than supermarkets, irrespective of the fact that milk and bread are supposedly bought at cost. Upmarket retailers are also best avoided; their higher mark-ups are generally justified by packaging and presentation.
Shop smart 2. The average middle-income South African family spends R36,000 per year on groceries. You can save up to 20% by following these shopping tips:
- Buy certain consumable items in bulk: deodorant sprays, washing powder, dishwashing liquid etc.
- Stock up on the right sale items: toilet paper, canned veggies and the like.
- Buy certain no-name-brand items. Nothing wrong with them; often you are simply saving money on the cost of the packaging.
- Try not to take your kids with you (unless you’re giving them a shopping lesson, see Give them hands-on lessons, p116) – not only will they encourage you to buy unnecessary items, they will distract you from your task in general.
- Don’t shop on an empty stomach…
- …or in a bad mood.
- Buy from the lower part of the shelf; the prices really are less.
- Check your till slip for mistaken double price scans; they happen.
- To give you some idea how all these cost-cutting measures add up, consider this: by following these principles alone a family can, in the course of the average working lifespan, save nearly R1,000,000!
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