Yep, we’ll be paying more for our loans and credit cards from now on. Seems that what comes down must go up – in this case our base interest rate that has increased by what they call “50 basis points”, or 0.5% to the rest of us. Fortunately interest rate adjustments, whether up or down, don’t have to be bad news. With a different perspective and a little help from 22seven (wink) there are opportunities for the financially savvy.
How to make more less
Instead of swallowing the increase and coughing up more money there are ways to make the most of a higher rate:
- Look at your Money Month. See where your money’s going. Maybe you can make some trade-offs and do a straight swap by spending less on something else in the blue day-to-day spending categorylike clothing, entertainment or takeouts. Spending less on trivial things is the quickest way to absorb the effects of a higher interest rate.
- Revisit your recurring expenses. Once you’ve got a grip on your yellow recurring category in 22seven you can make a change once that will bring repeating benefits. Perhaps it’s time to switch bank accounts – or banks – and save on fees. Get another insurance quote. If you’re not using your gym membership, cancel it.
- Go the extra metre. It’s possible that you’ll find more than you need to cover the rate increase. You’ll pay off loans and credit faster by putting in a little extra. Then you’ll have a head start if there’s another rate hike. Spending more on debt means losing less to interest.
- Make the rate increase work for you. You’re paying more but you can also earn more. Put your extra money into savings or other interest-bearing accounts – especially if you don’t have debt. Now you’re a black-belt in beating down interest rates.
The immediate effects of an interest rate adjustment might seem minor, but it all adds up quickly. The table below illustrates what the adjusted rate means for home loans in South Africa. You can use this to get an idea of how much more you’ll be paying on your loans and credit. Now is probably a good time to find out what your interest rates are for the financial products you have, if you don’t already know.
Making the right moves now can have a massive impact on the future. It all starts with understanding where all that cash is disappearing to every month and thinking about the behaviour that guides your buying decisions.
Getting something now as opposed to saving for it later is a massive temptation, but buying something later is often more satisfying when you’ve spent a few months thinking about whether or not you really need that thing while saving up to buy it yourself and escaping the trap of quick credit.
For some added inspiration, Adam Baker’s talk from TEDxAsheville reminds us to review what’s important from time to time and use this as a basis for our money moves: