Ways to cut back on household expenses after an interest rate hike

Interest rates jumped by 25 basis points at the last MPC meeting in March, leaving the prime lending rate at 7.75%. As the effects of this increase start to kick in, households will most likely need to find ways to cut back on expenses in order to afford the higher debt repayments.

Rising fuel and food costs, as well as higher debt repayments resulting from the latest interest rate hike, will undoubtedly put pressure on household budgets. While it might take some effort to cut back on household expenses, homeowners should always prioritise keeping up with their bond repayments to avoid the risk of having their home repossessed by the bank.

There are several options homeowners could consider to lower their monthly household expenses. The simplest, but often least desirable option would be to cancel any inessential subscriptions, for example, Netflix/Spotify/iTunes/Game Pass/Showmax/DStv. All these small fee subscriptions do not seem like a lot on their own, but as a collective, these amounts can accumulate to a lot more than many homeowners realise.

Homeowners should also consider that, depending on the size of the home loan, cancelling just one of these subscription services might be enough to cover the increase on the bond repayment caused by the interest rate hike. According to BetterBond, on a R1 million home loan taken over a 20 year period, the monthly instalment increased by R153 following the March interest rate hike – which is close to the cost for many of these subscription services.

For those without subscription services to cancel, homeowners could downgrade their cell phone contracts or switch to pay-as-you go options. Those who do not work from home could even consider downgrading the home’s internet connection as well.

There are also more sustainable options that homeowners could consider that would be good for both the planet and their pocket. Find ways to lower the household grocery bill by creating a vegetable patch at home where you can grow your own supplies. This can help minimise the packaging waste that results from a trip to the grocery store. Homeowners could also find ways to lower the electrical bill by practicing more responsible energy usage practices, such as setting the geyser to a timer and unplugging all electrical appliances when not in use. The same applies to the water bill. Homeowners could lower the costs by lowering their consumption. Examples include reusing grey water to water the garden and only doing your washing when it is a full load.

There are also somewhat more complicated options homeowners could explore to lower their household expenses, including shopping around for a cheaper life, home and car insurance policy or more affordable medical aid policy. Doing so might involve a bit of research and paperwork, but it could knock off a couple of hundred rand off your monthly instalments which might be all you need to cover the costs of the latest interest rate hike.

Even if homeowners are not in a position yet where the need to reduce their expenses exists it is always a good idea to review the household expenditures and consider where you can cut back to make more room for savings or paying down debts. “We are in the middle of an interest rate hiking cycle, so it is likely that we will see further interest rate hikes over the course of the year. It is always better to be prepared and to have some savings to fall back on if ever you find yourself in a tight financial position.”

Those who do not have savings in place and are unable to cut back on expenses to keep up with the repayments on the home, should speak to a real estate professional and explore the option of downsizing or renting out a portion of their home for additional income to get them through this challenging financial season.

Adrian Goslett is regional director and CEO of RE/MAX of Southern Africa.