How to reduce household spending after an interest rate hike

Interest rates jumped 25 basis points at the last MPC meeting in March, leaving the prime rate at 7.75%. As the effects of this increase begin to be felt, households will most likely have to find ways to reduce their spending in order to cope with the higher debt repayments.

Rising fuel and food costs, as well as increased debt repayments resulting from the latest interest rate hike, will undoubtedly put pressure on household budgets. While it may take some effort to cut household expenses, homeowners should always prioritize tracking their bond payments to avoid the risk of having their home repossessed by the bank.

There are several options homeowners might consider to reduce their monthly household expenses. The easiest, but often least desirable, option would be to cancel all non-essential subscriptions, eg Netflix/Spotify/iTunes/Game Pass/Showmax/DStv. All of these low-cost subscriptions don’t seem like much on their own, but as a collective these amounts can add up to a lot more than many owners realize.

Homeowners should also consider that, depending on the size of the home loan, canceling just one of these subscription services may be enough to cover the increased bond repayment caused by rising interest rates. According to BetterBond, on a R1 million home loan taken out over a 20-year period, the monthly payment increased by R153 following the rise in interest rates in March, which is close to the cost of good many of these subscription services.

For those without subscription services to cancel, owners could downgrade their mobile phone contracts or switch to pay-as-you-go options. Those who don’t work from home might even consider downgrading the home internet connection as well.

There are also more sustainable options that homeowners could consider that would be good for both the planet and their pocket. Find ways to reduce the household grocery bill by creating a home vegetable garden where you can grow your own supplies. This can help minimize packaging waste resulting from a trip to the grocery store. Homeowners could also find ways to lower their electricity bill by adopting more responsible energy-use practices, such as setting the geyser on a timer and unplugging all electrical appliances when not in use. The same goes for the water bill. Homeowners could save costs by reducing consumption. Examples include reusing gray water to water the garden and washing only when fully loaded.

There are also slightly more complicated options homeowners could explore to reduce their household expenses, including seeking out cheaper life insurance, home and auto insurance, or more affordable medical insurance. It might involve a bit of research and paperwork, but it could set you back a few hundred rand from your monthly installments, which might be all you need to cover the costs of the latest interest rate hike.

Even if homeowners aren’t yet in a position where the need to cut spending exists, it’s still a good idea to look at household expenses and figure out where you can cut back to make more room for savings or repayment. debts. “We are in the middle of an interest rate hike cycle, so it is likely that we will see more interest rate hikes over the course of the year. It is always better to be prepared and plan ahead. have savings to fall back on if you ever find yourself in a difficult financial situation.

Those who do not have savings in place and are unable to cut expenses to meet home repayments should speak with a real estate professional and explore the possibility of downsizing or renting out part of their home for additional income. to help them get through this difficult financial season.

Adrian Goslett is Regional Director and CEO of RE/MAX Southern Africa.

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