THIS is an edited version of an article that first appeared on JustMoney.co.za
WITH the rapidly rising cost of living, it may not be clear how much money South Africans need to survive, both while earning a living and in retirement. Gareth Price, the founder of Cloudworx and Investmint, and the CFO at BackaBuddy, said, in general, households should prioritise the basics, such as food, rent, transport, electricity, education, burial insurance, debt repayments, basic hygiene and medical products. He believes that on average, these costs add up to R7 000 to R9 000 per month. “If you want to move into the middle class, school fees and rent become more expensive and you may choose to purchase a car rather than relying on public transport. On top of this, you may take out medical aid and perhaps invest in a savings plan. Here you’re looking at an income of between R35 000 and R45 000 per month,” said Price.
The vast majority of South Africans earned less than R3 500 a month, with only the top 1% earning around R45 000, he said. To put this into context, a state old age pension grant offers a maximum of R1 890 per month, or R1 910 if you are older than 75 years. Retirement
Christelle Louw, an advisory partner at Citadel, said to retire sustainably and securely in South Africa, you would need at least 20 to 30 times your required annual expenses as accumulated capital over your lifetime. According to Statistics South Africa’s employment report for the fourth quarter of 2021, the average worker’s salary in South Africa is R23 982 per month. This amounts to R287 784 annually, which would require a minimum of R5 755 680 R287 784 multiplied by 20 for a sustainable retirement. Louw said that financial independence was only achieved by 6% of the population, and 94% of South Africans would not be able to sustain their income from their savings. This means their lifestyles would have to be adjusted downwards during retirement, such as living in a smaller home. Planning is important.
Shafeeka Anthony, the marketing manager of JustMoney, says the Covid19 pandemic, job losses and price hikes for household goods and services had exacerbated many people’s already dire financial situations. South Africans have numerous concerns, from security, electricity and transport, to quality education for their children. “It is absolutely vital to assess your financial situation honestly and to put a plan in place. Getting back to basics and focusing on essentials is the only way that most people will cope with their present needs, let alone growing investments for when they can no longer work.”
Anthony offered these tips:
1. Work out a budget: Track money coming in, versus your regular monthly bills and variable expenses those that change from month to month. Bank and credit card statements are a helpful place to start. Soon you will see where your money goes, and where you can cut back.
2. Forget brand loyalty: Draw up a weekly shopping list and buy your supplies where you will get the best value. Avoid popping into convenience stores for a few items, this comes at a price.
3. Reduce your debt: First, debt is acceptable if it takes a form such as a home loan to purchase your own property. Debt is bad if you borrow money to buy the latest gadgets. If more than a third of your income goes to paying your debt, and you find yourself taking out loans to get through the month, get help before a legal process is started against you. Professional debt review companies will advise you on debt relief and protection from creditors.
4. Save: It is essential to save, even if it is only a small amount every month. For example, stop buying coffee takeouts, and cancel a gym membership you hardly use. Allocate these amounts to a separate account, and you will be surprised at how these add up over a year.
5. Build an emergency fund: An emergency fund of at least three months’ income will help mitigate the need to take on debt, or liquidate investments during cash-strapped times.
6. Check your medical aid: Read over your medical aid plan to ensure it still meets your needs. Inform yourself about, and use the benefits.
7. Maintain insurance: Shop around to get the best deal, but do insure your property and vehicle with a reputable company that should pay out when required.
8. Grow your income sources: Many people are taking on additional parttime work, from bookkeeping to teaching English. Online learning has also made it easier to build your skills and qualifications. Explore new ways to boost your income.