April is here and it is in all probability your worst financial reality check. You may possibly even call it your ‘financial doomsday’ – the 2018 VAT rate increase. And, if you think that “there’s nothing to it” – you’d better THINK AGAIN.
“As of the 1st of April almost every monthly expense will increase by 1% and there are tough times ahead,” says Matthys Potgieter (spokesperson and debt expert at DebtSafe).
If you usually spent R11 400 on your monthly expenses (VAT included), you will now spend R100 more. Or, if you usually spent R22 800 on your monthly expenses (including VAT), you will now have to pay R200 more. “It all adds up in the end,” states Potgieter.
“If you look at goods and services exempted from VAT – it refers to non-fee related financial services, educational services provided by an approved educational institution, residential rental accommodation and public road or rail transport,” mentions Potgieter. There are also certain goods and services that are zero-rated like exports, international transport services, farming inputs, certain grants by the government and basic foodstuffs (such as brown bread, maize meal, milk, rice, vegetables, eggs or lentils for example).
Here are a few things that will have an influence on your financial environment:
- Any type of service agreement fee – whether essential or non-essential (like a phone contract, your DSTV subscription or gym membership) will go up. Thus, if you used to pay R398.50 for your phone provider each month, you will now have to pay R401.99 for example.
- Groceries are going to be more expensive (excluding zero-rated goods). So if you used to pay R1 500 for your monthly groceries, you will now pay R13 more each month. R156 more over a 12 month period.
- Your short term insurance fee (household content or vehicle insurance for example) will go up. If you paid R1 600 per month for all your short term insurance premiums, your overall payment will increase by R14.
- Administration fees for the bank will also increase.
- You will pay more VAT on your vehicle finance’s account fee (note: not on your finance repayment).
- And, you will also have to pay more VAT for your home loan’s administration fee.
“The above ‘small amounts’ can be misleading to the eye and as previously mentioned, it all adds up. The VAT increase will undoubtedly affect your pocket and the time to take responsibility for your financial situation is NOW,” highlights Potgieter.
“And how can I do that exactly?” you may ask. Potgieter shares a few things that you can do to try and keep your debt to the bare minimum and, to also become a responsible money-savvy consumer especially during tough economic times:
- Restructure your budget – take your bank statements and see what luxuries or non-essentials you can cut on (like your DSTV or MNet subscription, garden services or club memberships for example).
- End your reckless borrowing habits – YOU are responsible for your debt and finance management, so stop playing victim and don’t be a blame-shifter. When deciding on taking out credit – compare rates and costs from different credit providers by doing the necessary research to see if you can afford the loan(s) or item(s), beforehand.
- Put a dent in your debt – there is one of two options that you can consider when trying to get rid of your debt:
- you can either make use of the so-called snowball effect by paying off your smallest debt first (like a clothing account); or
- you can use the avalanche method – where you pay off your debt with the highest interest rate first, like your credit card.
- Get the professional help you deserve – if you have done all of the above already and, still feel overwhelmed by the VAT increase reality or your current debt situation – then get the help you need. Consider accredited financial advisors, your banker and in worst case scenarios, debt counsellors like DebtSafe (that use an approved debt review program, recommended by the National Credit Regulator).
Don’t let the VAT increase be the master of your financial fate. But, be the chief of your own financial environment by adding small, yet efficient, behaviour tweaks in the way you manage your finances. You will not regret it. The time is NOW.