Warning to South Africans on a budget

Increasing financial pressure is forcing many South Africans to have a closer look at their spending, but experts warn that certain cuts could leave households financially vulnerable.

With the nation focused on strategic spending and the recently proposed VAT increase, Santam’s head of Product Strategy, Development, and Governance, Leruo Malumo, encouraged households to optimise their personal budgets.

Consumer inflation climbed to 3.2% year-on-year in January from 3% in December, marking the third consecutive monthly increase. This upward trend is largely driven by rising housing, utility, and food costs.

“With the cost of living climbing, small but smart adjustments to everyday expenses can make a big difference in maintaining financial stability,” Malumo said.

However, he cautioned that while optimising budgets can be beneficial, certain cost-cutting measures can leave households financially vulnerable.

“Finding ways to cut down expenses can be a financially empowering exercise, but it’s crucial to ensure that the cuts you make today won’t result in costly consequences down the line,” he said.

One way that people have been bolstering their budgets – at a cost to their future financial well-being – is by taking out their retirement savings.

With the introduction of the two-pot retirement system in September last year, concerns for the financial security of future retirees were heightened as South Africans flocked to alleviate their current financial constraints, Malumo explained.

However, early withdrawals are like loans you take from your future self at the rate of return you would expect from your investment when you reach retirement.

“Most people don’t realise the actual cost of short-term financial decisions – they think they will have time to make up for the loss, but that’s the one resource we can’t renew or make more of – time,” he said.

“When it’s time to trim excess expenses, common targets are purchases such as insurance and, like the concerns about early withdrawals from the two-pot system, there is a future cost that’s not being taken into consideration.”

Saving on insurance

Malumo advised that a more strategic approach would be to optimise your insurance along with your budget.

Instead of cancelling insurance to cut costs, review your policies with a financial adviser to ensure you’re not over- or under-insured.

Adjusting coverage, bundling policies, or exploring discounts can help you save money without sacrificing financial protection. Cutting insurance entirely could leave you exposed to major financial losses in an emergency.

Malumo suggested several areas where cutting back can help save money without putting long-term financial security at risk.

For those working remotely, he recommended looking for innovative ways that their insurer may have adapted cover and premiums depending on their risk profile.

For example, if you work remotely, you are likely to drive less and park safely at home – because the risk is lower, this could improve your premiums.

Combining your car and home contents insurance with the same insurer is also likely to save on premiums.

Malumo added that people should also regularly review their policies to align their cover with their current lifestyle.

“You could be over- or under-insured. Is the replacement value of your car correct? Have you downscaled and cleaned out some of your home contents?”

“It is critical to ensure you’re not underinsured as this could be costly should you need to claim. Spring clean and assess your cover at least once a year to remove the right items from your policy.”

Malumo further advised that South Africans should increase their excess since this usually results in a lower premium.

“Remember, this means paying more out of your pocket at the claim stage, so check whether this is feasible.”

Finally, he said that people should start a rainy-day fund for small expenses such as little dings in their cars.

“The longer you stay claim-free, the more likely you are to qualify for sizable premium reductions.”

While every household’s financial situation is different, the key is to make budget cuts that empower you rather than expose you to risk, Malumo noted.

With a strategic approach to budgeting, Malumo says consumers can balance immediate savings with long-term financial resilience.

“South Africans who make informed choices can take advantage of the current economic climate to strengthen their financial well-being while ensuring they remain protected against unforeseen events.”