Thought I'd share this very interesting article, which Ive received on email
The Consumer of 2009: Top Concerns and Action plan
If you were to ask a consumer to draw a picture to reflect what affected him in 2008 it will probably include an image of high rates, high fuel prices, increasing food prices, heavy debt and a blurred image to reflect the credit crunch.
Ask the same consumer to draw a picture of what 2009 holds it could well include an expectation of lower interest rates, lower food prices, lack of job security, reduced spending, and the same blurred image to reflect the credit crunch and a huge question mark on personal debt.
Yes it is true, consumers can expect a substantial rate reduction this year and the lower oil price and exchange rates have already produced lower fuel costs.
But this is where it ends for now. Although we expect food prices to reduce this has not happened yet. Also transport costs should reduce but like the food producers they have a box full of reasons why this cannot happen at this point in time. When this happens we can expect inflation to come down and this should have positive spin offs.
This does not mean that consumers will have it easy in 2009. To the contrary, 2009 will be a very difficult year for consumers. The main reason for this includes the following:
Current debt levels of consumers.
Unwillingness of consumers to get involved to resolve their own problems.
Expected reduction in jobs during 2009.
Effects of the 2008 credit crunch where more bad news is expected.
Although there are a lot of external issues that affects the consumer’s personal finance the consumer is alone in managing and solving this. You are paid a salary and only you decide how your money should be spent. Nobody else will tell you how to spend your money and nobody will be there to guide you in planning your finances unless you start the process.
Notwithstanding the above consumers want to blame somebody for poor personal finance issues and maybe the current lack of service ethics has influenced the apathy of consumers. Let me use two examples.
I recently had a problem with the yellow cell company and I phoned the call centre who was unable to solve my problem. I asked to speak to the CEO and the response was quick: The CEO does not speak to clients!
When last did you phone a call centre? At Telkom and many Government Departments you are lucky if the phone is answered. At most service providers and some banks the phone is answered fairly quickly but it is a mission to get that person to resolve your issue. The very same corporates are lyrical about their service models.
If this is the culture that is created at corporate level it is no wonder that the consumer lacks the appetite to be proactive about his or her personal finance.
Surprises are however found in small corners. Who will expect a good service from the Mogale City Traffic Department to renew licenses and register vehicles? Well many individuals can learn from this. This department is organized, on time and provides a fantastic service on an ongoing basis.
If you ask the officials at Mogale City Traffic Department what has changed they will tell you they wanted this to happen. They planned for this and they are working very hard to keep it like this and they are extremely proud about their service model.
What should consumers do for 2009?
Forget about the passive model. Mogale City is unable to solve municipal delivery on a national scale but they can certainly solve their own delivery issues.
Your position as a consumer is no different. You will not be able to solve the global credit crises or affect interest rates or have an impact on the food price.
What you can do is to get your own service model in place. As a consumer you drive and manage your own service model. Maybe it is time to score your own service model and if your score is the same as some of the corporates mentioned above – well then you get what you deserve.
On the other hand a will to do something about your own service model and a few actions will dramatically improve your personal finances and like the officials at Mogale City you will feel good about what you are doing for yourself.
Here are a few easy to implement actions:
There are two main issues regarding your income. The money you work for and the money you spend.
The first important principal is to cuddle your job. Make sure your service delivery model to you employer is good. If this is the case your job might be safe.
The second principal is to balance your spending and to plan your spending for 2009.
To do this implement the 35 - 25 - 35 principal on your personal budget.
Your budget normally consists of 3 main categories:
Household Expenditure (This includes spending on domestic, food, communication, entertainment, security, travel cost (not debt repayments) and water and electricity).
Financial Services ( this includes Assurance, Insurance, Medical Aid, Pension and other Savings).
Debt Repayments (This includes your monthly repayment of your debt such as: Credit Card, Bond or Rent, Car Repayments, Installment Sale, In Store Accounts and any other Monthly Debt repayment.
For an average person with an average income a balanced budget should be based on the following principal:
Total average spending on each category should be as follows:
Household Expenditure: 35 percent.
Financial Services: 25 percent.
Debt repayments: 35 percent.
Monthly saving for emergencies: 5 percent
The average consumer income in South Africa is about R12 500.00. If you earn less than this you will need more money for household expenditure. For instance if your income is R4 000 per month you will need about 70 percent of your monthly income for household expenditure. This means you have less to spend on the other 2 categories – especially debt repayments.
A young person might increase debt repayments for instance when they purchase a house but that means that they will spend less on the other categories.
If you earn substantially more than R12 500 per month, say R50 000, then you might spend less on household expenditure and a bit more on debt repayments or saving for retirement.
The overall principal is that you should only spend 100 percent or less of your income per month. Especially for 2009 which we expect will be difficult for consumers. If your monthly spending is more than 100 percent of your income per month you are living above your means and you are probably using debt for this purpose and if this is the case it requires your immediate attention.
The first 5 percent should always be saved for an emergency. This leaves 95 percent to be spent on a monthly basis. In a balanced budget this could be 35 - 25 – 35 . If you spend less on one category you have more available for the other and visa versa.
Remember this: Most people spend too little on Financial Services because they simply don’t save enough for their retirement. That is why only 6 percent of people can maintain their lifestyle when they retire.
Expect 2009 to be difficult. Plan to spend less. Cut back on you spending on nice to have items. Depending on your budget this could include, buying less food, less clothes, less entertainment or lower cost DSTV.
The message is plan to spend less.
If you have debt then you need to implement a plan to reduce debt faster. If your monthly debt repayments exceed 35 – 40 percent of your monthly income stop using debt (yes - lock away your Credit Card) and increase repayment of debt. Repay expensive debt first and plan to increase your home loan payment. Don’t take new debt to repay existing debt. If you do this you just extend the problem and you are not solving it.
You will also know if you are in trouble to repay you debt. If this is the case do not wait. Do something about it now or make an appointment with an expert or Debt Counsellor to help you. The longer you wait the more difficult it becomes to resolve the problem.
You as a consumer should therefore renew your own personal finance license because you can and want to. These steps will not solve all your personal finance issues at once but this proactive action will help you to be better prepared for the challenges of 2009.