4 top tips for managing your bond in tough economic times
The South African Reserve Bank made a surprise move in July 2017 by cutting the repo rate by 0.25%. This good news for homeowners is they can now expect to pay a little less on their home loan interest rates each month. This will hopefully free up some additional disposable income for using towards other much-needed budget items.
Interest rate cuts aside, South Africans will need to keep their belts tightened for a while yet to come: the country’s credit rating downgrade to ‘junk status’ in the first quarter of this year, and our subsequent slip into an economic recession, means there are still lean times ahead.
In this day and age, having to be more financially cautious isn’t necessarily a bad thing; now is as good a time as any for homeowners across the country to find creative ways to live within their means and avoid all unnecessary debt.
The following are our top four tips for effectively managing your bond in tough economic times.
Reduce your debts
If done properly, debt consolidation is an effective way of reducing your monthly debt repayments. This entails consolidating all your high-interest, short term debt (such as store cards, personal loans or credit cards) and replacing it with a lower interest rate loan (such as your home loan, which is paid over a longer term). This is one way to make your monthly loan payment(s) more manageable and increase your cash flow.The word of caution here: debt consolidation will increase the lifetime of your debt, and thus your interest payments over time (i.e. you’ll be in debt for much longer and will pay more on interest over the long term), so be sure to get comprehensive financial advice before implementing this particular debt management approach.
Set a budget
Tracking your expenses with a fixed budget is one effective way to help you avoid spending more money than you actually earn each month. There are many online tools you can use to develop a feasible spending plan for your household and capture your day-to-day and recurring expenses. As these expenses begin to add up, you’ll be quickly alerted to the need to cut back or slow down on your spending and hopefully avoid running out of cash before the end of the month.If you are thinking of buying a new home, feel free to use our affordability calculator to find out how much you can afford to spend on a new property purchase. This figure is worked out based on your monthly income and expenses and the deposit you’ve saved up towards your new investment.
Live within your means
A fixed budget will help you better separate your wants and needs to avoid unnecessary spend. Other ways to live within your means include saving wherever possible, having an emergency fund available for those unavoidable ‘bad-weather’ days (i.e. unexpected payouts on medical bills, car repairs or broken home appliances etc.), cutting down on existing expenses, and trying not to compete with others in terms of financial status and material belongings.
Prioritize your home loan.
As far as savings go, it’s important to pay as much into your bond as possible each month to reduce the lifetime of your loan and save on interest expense. Despite lower interest rates, it’s still prudent to continue putting more than the required monthly instalment into your bond. Once you’ve finalized your budget and reviewed what you can cut back on in terms of spending, consider redirecting any savings into your home loan.
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