Death by 1 000 VAT paper cuts averted - what now?

Update

GEORGE NEWS - While Freedom Day on 27 April gifted the South African public freedom from the second VAT increase in just seven years, consumers' personal fiscus is not yet out of the woods.

Many consumers experience VAT hikes as a slow leak in their finances - akin to the metaphorical 'death by a thousand paper cuts'. It is not one big change, but dozens of smaller increases that collectively tighten the squeeze.

The decision to ditch the proposed 0.5% VAT increase may have delivered the public from the vice grip of a jacked up VAT rate, but it leaves a gaping hole in the government fiscus. The shortfall, estimated at about R75b over the medium term, is revenue critical for service delivery. This may catalyse government borrowing or cuts elsewhere - steps that could directly impact households in other ways.

Fortunately one does not need to earn a big salary to make smarter financial decisions.

George Herald spoke to Old Mutual executive financial planner Henri le Grange about a few practical steps the public can take to build financial resilience in the face of the ever-increasing cost of living.

"The economy may be uncertain, but your financial habits are fully within your control," said Le Grange.

1. Start with a realistic, working budget

Le Grange recommends listing your income and expenses and tracking where your money goes.

"Many people discover they're spending R500 to R1 000 per month on small, forgotten items. Once you're aware, you can make better choices," he said.

2. Prioritise needs, delay wants

Rent, groceries, transport and electricity are non-negotiables. If money is tight, Le Grange recommends cutting back on streaming subscriptions, frequent takeaways or luxury goods.

"You don't have to cut them out forever, just until you're back on solid ground."

3. Eliminate expensive debt

This involves paying off high-interest store cards or personal loans first.

"If you're stuck juggling multiple debts, consider talking to your bank or a registered debt counsellor. Avoid payday lenders at all costs, as the long-term damage far outweighs the short-term relief," said Le Grange.

4. Save in small, consistent amounts

He recommends starting with R100 or even R50 per month and automating it.

"This is your emergency fund, your airbag when the tyre bursts or your geyser breaks."

He adds that even small, seemingly insignificant savings protect you from going deeper into debt.

5. Shop smartly

Use loyalty points, buy essentials in bulk and look out for store brands. Plan meals around what is on special and do not go shopping when you are hungry, as that is when we overspend. He says simple changes like these could cut hundreds or rand off your monthly grocery bill.

6. Cut energy costs where you can

Here Le Grange recommends switching off lights and appliances when not in use, using a geyser timer and considering switching to prepaid electricity in order to be more aware of usage. He says these tweaks may save you R100 to R300 per month, which you could then direct towards savings or chipping away at debt.

7. Communicate and plan as a household

Talking about money at home is key.

"If kids are old enough, help them understand why certain things are being cut back. This creates teamwork and teaches good habits for the next generation."

8. Avoid financial scams

"If it promises massive returns with no risk, it's not real," Le Grange warns.

He recommends sticking to registered institutions and, if there's any uncertainty, asking someone with experience before blindly investing or signing anything.

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