By: Leruo Malumo, Head of Product Strategy, Development, and Governance at Santam

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 nation focused on strategic spending and the recently proposed VAT increase, Leruo Malumo, Head of Product Strategy, Development and Governance at Santam, encourages households to optimise their personal budgets: "With the cost-of-living climbing, small but smart adjustments to everyday expenses can make a big difference in maintaining financial stability."

However, Malumo cautions that while it is beneficial to optimise budgets, certain cost-cutting measures can leave you 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.”

Optimise, optimise, cut

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

“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.

“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,” says Malumo. He advises 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 shares four areas where cutting back can help save money without putting long-term financial security at risk:

• Working remotely? Look into innovative ways that your insurer may have adapted cover and premiums depending on your risk profile. For example, if you are working remotely, you are likely driving less, and parking safely at home – due to the risk being lower, this could improve your premiums.

• Bundle up and save. By combining your car and home contents insurance with the same insurer, you are likely to save on premiums.

• Ensure your policy is regularly reviewed. Align your cover with your current lifestyle. You could be over- or under-insured. Is the replacement value on 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.

• Increase your excess. An increase in your excess usually results in a lower premium. Remember, this means paying more out of your pocket at claim stage, so check whether this is feasible.

• Pay for the small stuff: Start a rainy-day fund for the small expenses such as little dings in your car. The longer you stay claim-free, the more likely you are to qualify for sizable premium reductions.

Every household’s financial situation is different, but the key is to make budget cuts that empower you rather than expose you to risk. 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," concludes Malumo.