How the National Budget and the downgrade to Junk status affects you

How the National Budget and the downgrade to Junk status affects you

On Friday the 31st of March 2017, South Africa woke up to the news that a major cabinet reshuffle took place while we were sleeping. The Minister of Finance and his deputy was fired, and the markets reacted immediately. Before the weekend started, further bad news was received, South Africa’s credit rating was downgraded to junk status.

Unfortunately, to the average South African consumer, this was bad news for their pockets. The downgrade will affect all walks of life, and the poorest will experience it at its worst.

To better understand how this will affect your daily life and what actions are needed let’s first recap on a few points of the 2017/2018 National Budget and how it affects you:

  1. A new tax rate of 45% was announced for personal income tax above R1 500 000.
    This increase will put significant pressure on the disposable income available from an already pressured consumer. Every consumer will need to cut down on their spending and settle any debt as soon as possible.

  2. The tax-free savings limit was increased to R33 000
    Never before was there a better motivation to start or increase your savings.

  3. The general fuel levy increased with 30c per litre, and a 9c per litre increase for the road accident fund was announced.  This is not only bad news to the general consumer’s personal usage of fuel, but it also carries through to the prices of all goods and services. Carpooling is a quick and easy way to cut on fuel expenses.  This is also probably a good time to look into the significance of a second car and even the size of the car, especially with regards to the fuel economy thereof.

  4. The tax on tobacco and alcoholic products was again increased with between 6 and 10%.  This is probably the best time to cut down or even stop with the consumption thereof.

  5. No transfer duties will be payable on a property to the value of R900 000 or less.
    This gives first time home buyers a better opportunity to enter the housing market. If your finances allow, do this sooner rather than later.  This is also an excellent opportunity to rethink the size and maintenance costs of your current house and the possible downsizing thereof.

  6. Higher education received an additional R5 billion.
    It is still not nearly enough to assist with the cost of education, and it remains expensive. Saving for your child’s education is crucial and should start as soon as possible.

With this budget in effect, the average South Africans’ life just got worse with the downgrade. In short, the downgrade will affect you as follows:

  1. You will pay more towards interest on your debt.
    Any debt you have will become more expensive, and your monthly payments will increase. This includes, for example, your home loan, your vehicle finance, a personal loan or credit card.

  2. Your salary may not increase, but the inflation rate is expected to increase even more.
    You will find yourself in the unfortunate position of having less money to pay for items that will cost more. You will need to rethink your spending habits and be more conscious of what is really necessary.

  3. Job losses are possible.
    The majority of industries are at risk as companies will also have to cut down on expenses to survive. Ensure your savings is enough to be able to carry you through a few months of no or little income.

  4. No confidence in the markets means no spending or further investments.
    This will influence your personal finances negatively. This is no reason to stop or cut on the investments; you should rather ensure that the investments you make are at a lower risk and better guaranteed on the outcomes.

The only steps we can take to survive this economic downturn is to take control of our finances and especially our debt.  We need to cut any unnecessary expenses and start saving for those rainy days – they are on the way. If you feel worried about the current state of affairs and overwhelmed by your debt give Debt Rescue a call.  

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