Surviving the cost-of-living crisis

The price increases for essential goods such as food, petrol and household utilities are a global concern, but the region most hurt by the surge in food prices is Sub-Saharan Africa.

The knock-on effect from the supply chain disruption caused by the Covid-19 pandemic, climate disasters that resulted in food insecurity and energy shortages have driven prices through the roof.

A report by Numbeo, which contains the world’s largest database on costs of living, found that South Africa is the ninth most expensive African country to live in and the most expensive in cost of living (in terms of groceries, transport, utilities and restaurants) in southern Africa.

Windhoek is the 13th most expensive city out of 19 measured in Africa, according to Numbeo.

The index shows Côte d'Ivoire is the African country with the highest cost of living, followed by Senegal, Ethiopia, Mozambique and Mauritius.



Missing meals

Consumers have had to cope with food prices by meal planning or buying in bulk to save money.

Unilever’s food group Knorr found that the average South African was also skipping breakfast and eating two meals on weekdays, and only having breakfast during the weekend.

After years of researching personal finance and development finance, we have taken a keen interest in understanding how consumers manage their resources to overcome economic challenges, such as the cost-of-living crisis.

Now is a good time to be financially prudent and plan for how you can keep afloat during these tough times.

It’s important to know how to manage the cost-of-living crisis, whether it’s by getting out of debt, being strategic about how you save or tracking the expenses that consume a big chunk of your income.

Keeping an eye out for where you can boost your savings or reduce expenses can make a significant difference to your financial wellbeing.

Since everyone’s financial situation is different, none of this should be taken as financial advice. It’s always best to speak to an authorised financial service provider.

Some of these suggestions may only be helpful to individuals with access to banking services and those earning a regular income. With these provisos in mind, we unpack three areas to consider when managing the cost-of-living crisis.



Consolidate your expenses

Review where you’re paying for the same expense twice.

A good example is bank fees. If you’re banking with more than one bank, then chances are you’re paying bank fees for similar transactions across different banks. By housing your finances with one bank, you can reduce bank fees.

Another example is subscriptions for streaming services.

Consider how many accounts like Netflix, YouTube Premium, AppleTV and Showmax you have, and ask yourself: how many of them do you really spend time watching?

All the fees add up. As Benjamin Franklin, the former US statesman, once put it: “Beware of little expenses. A small leak will sink a great ship.”



Clear debt

Since the cost-of-living crisis plunged more South African households into indebtedness, Nedbank’s Financial Health Report found that almost 50% of South Africans believe it is okay to take on debt to cover household expenses such as groceries, clothing, furniture, appliances, electricity and water.

In Nigeria, too, consumers are turning to loans to cover daily expenses as inflation rates rise.

Taking on more debt when living expenses are on the rise can easily sink you deeper into the debt hole. Instead, coming up with a plan to pay off debts will eventually free up your cash flows.

There are two strategies to try: the debt snowball approach or the debt avalanche method.

The debt snowball approach prioritises paying off your smallest debts first, before moving on to larger loans. Seeing your debt clearing up motivates you.

The debt avalanche approach tackles the debts with the highest interest rate first and will thus save you the most money as your high interest repayments are eliminated.

Whichever approach you decide to use, seek the opinion of a professional financial advisor.



Compartmentalise your savings

Saving provides financial security and a buffer for unplanned financial expenses. And it helps you reach your financial goals.

While households with intermittent income are more likely to struggle with building up savings, opportunities to save may come in the form of reducing shopping costs, like switching to supermarket brands (which tend to be cheaper) or buying refills for household cleaning products.

In general, most people who actively save keep their savings for holidays, emergency funds, future purchases and long-term goals all in the same account.

The problem with this approach is that when you need to withdraw from the savings account, you don’t know which part of your savings you’re withdrawing from.

One way to organise your savings is by separating them into the categories you are saving for.

This could be done in a spreadsheet that shows how much you have saved for each category. You can clearly see how your savings for each goal are growing, which encourages you to keep the savings momentum going.



Apps

If you’re interested in taking this a step further, budgeting apps such as 22seven create personalised budgets based on your actual spending patterns. This free app allows you to set limits for what you want to spend and tracks how much you’ve already spent.

For example, you can decide what you plan to spend for lifestyle expenses (such as dining out or shopping) and receive a notification when you are close to reaching your spending limit.

But it’s important to practise some self-discipline and not overspend once those funds are depleted. And while this may seem like yet another app that needs to be installed, think of how easy it is to tap your debit card when going about your day and spending more than you had planned.

Sometimes we need to put measures in place to save ourselves from ourselves, and this is one of them. – Own report and The Conversation