By Francois Viviers
The South African Reserve Bank’s (SARB) announcement to reduce the repo rate by a further 25 basis points brings this year’s total cuts to 300 basis points and offers South Africans some much needed financial relief.
For instance, consumers with a home loan of R1 million will now pay roughly R150 less per month.
The repo rate drop means that households may benefit from extra disposable income.
Consumers need to relook their budgets and try to pay off any debt, especially in light of the current pandemic. This cut is an ideal opportunity to review your financial goals, given the current economic climate. If possible, begin by paying off debt faster; this can reduce the overall interest you pay. Your disposable income will increase once it’s paid off.
It is also an important time to focus on savings. Our clients get access to four free savings plans, which can be named for their purpose, such as an emergency, education or home improvement fund. Save towards items that will help you live better and that your future self will thank you for.
Here are my 4 top tips
Pay off your debt faster. The decrease in repo rate means that your monthly instalments on credit with flexible interest rates will decrease. While it may be tempting to use this money to improve your lifestyle, rather continue to pay off your debt as if the interest rate change has not taken place. Paying off a loan faster means that you’ll save on the amount spent on interest. Your future self will also thank you for fewer months of loan instalments, meaning more money to invest in your future or in things you actually enjoy.
Tip: Pay off credit with higher interest rates first. Store and credit cards often have high interest rates when compared to other loans. Prioritise paying off these to maximise your savings and, where possible, move to simpler and more affordable options. Capitec’s credit card offers low, personalised interest rates.
Start that much-needed emergency savings fund. One of the lessons to come out of the Covid-19 pandemic is that savings are important as life can present unexpected situations. Build enough savings to cover at least three month’s expenses. This protects you from dipping back into debt each time there is an unexpected expense. Also, be sure that your money is working for you by placing it in a savings plan that offers you the highest possible interest rate.
Pay it forward to your future self. Use your bank’s app to set up a recurring monthly payment into a savings plan. Once you’ve built up a sizeable nest egg, which will be earning interest each month, you can use this money to buy a new household appliance, to purchase a new computer or even kick start that side hustle you’ve been dreaming about.
Study further. Consider using your monthly savings to fund studying further, which could earn you a promotion or the opportunity to apply for a new exciting job.
Francois Viviers is the Executive of Marketing and Communications at Capitec
PERSONAL FINANCE