If you are unable to pay your debts it is time to weigh up what to downgrade. Picture: Andriy Popov/123RF
If you are unable to pay your debts it is time to weigh up what to downgrade. Picture: Andriy Popov/123RF

When your expenses exceed your income, you have only two choices: spend less or earn more. For many people, it's easier to cut back than it is to increase earnings. But how do you cut back when costs are ever increasing? You have to interrogate your finances, cut out wasteful expenditure, examine what you value and can't live without, and trim back even further.

Many people claim to have cut their expenses to the bone, but most South Africans have no real budget. A report titled "More Money Than Month", the findings of research commissioned by TymeBank, shows that most South Africans are not committed to budgeting, with 36% of respondents saying they have a "loose mental budget" and 19% confessing to having drawn up a budget that they don't stick to.

1. Budget

When you're struggling to make ends meet, the first thing you have to do is draw up a proper budget or update and review your existing one.

A hard-working budget begins with all of your income and lists all of your expenses, starting with fixed expenses and then variables. It must accurately reflect what your actual fixed expenses are - from your bond repayment or rent to children's education and any insurance. Make sure you allocate realistic amounts for variable expenses such as food and transport. And make sure your budget provides for emergency savings.

Anne Cabot-Alletzhauser, the head of the research institute at Alexander Forbes, says emergency savings must take priority over all other savings - even saving for retirement. "Without emergency savings, we have seen that people in financial crisis will simply find a way to access their retirement savings anyway."

2. Cut wasteful expenditure

Pore over your past three months of bank statements and look for wasteful expenditure, such as spending on takeaways, daily trips to coffee shops, dining out and lavish gifts for friends and family.

You may have a gym membership you aren't using, or subscriptions to magazines you never get around to reading.

Look at what you're spending on data and airtime. "Telco services such as data and airtime are a big spending item for most people," says Doret Jooste, the chief executive of money management at FNB Retail.

Some banks offer customers who hold certain qualifying accounts free data, voice minutes and SMSes every month.

Jooste says FNB customers who have Gold cheque accounts can save on average R109 a month on airtime/data expenses by using FNB Connect.

Review your bank charges. The newer banks offer low-cost accounts that attract no monthly fee and low transaction fees. Many of the big banks have mimicked these. If you have relatively simple banking needs and you aren't wedded to your bank's loyalty programme, it may be worth switching banks or moving to a no-frills account.

Bank smarter by using digital banking channels - such as your bank's app or cellphone banking - wherever possible, especially for bank statements and making payments, which cost the earth inside a branch. Always try to avoid other banks' ATMs and even your own if you can draw cash from till points at low cost, as Capitec customers can.

FNB customers can use Shoprite and Checkers to withdraw cash while shopping, at a fraction of the cost of drawing from the bank's ATMs.

3. Review essential expenses

List all of your essential expenses and consider cheaper options. An older car could be insured for less. Do you really need to insure that old digital camera or those bicycles you no longer ride?

Life cover may be more difficult to review as when you are older cover costs more, but there may be bells and whistles on your
policy, or you may be able to cut some cover for debt you have repaid. Don't cancel medical scheme cover, but look for a cheaper

Review expenses like school fees, car costs and accommodation and decide what is important to you. Could you downgrade and save without really missing private schooling, a luxury vehicle or costly home?

4. Count the cost of loyalty

Consumers love loyalty programmes, with 75% of economically active South Africans using them, according to the latest South African Loyalty Landscape white paper. Women in SA belong to, on average, five loyalty programmes, and men four.

These programmes can be valuable but only if you are actually getting more than you pay for them. If not, cancel the subscription.

Discovery's loyalty programme, Vitality, can be quite costly. A single member on Vitality pays R259 a month or R3,108 a year. A member with two or more dependants pays R359 a month. If you aren't actively earning rewards, your membership is costing you, so you need to do a cost-benefit analysis to work out if it's worth remaining a member.

5. Decimate your debt

Short-term debt - such as micro loans, personal loans, credit card debt and overdrafts - can be viciously expensive.

If you have discretionary savings, such as a retirement annuity, tax-free savings plan or other investments, and you're also paying off expensive short-term debt, consider pausing your contributions towards such savings in order to pay off the debt.

While you should be saving for retirement, and retirement savings do save you tax, it will take a lot of returns and tax saving on these contributions to beat the interest you could pay on a credit card, which could be in excess of 20% a year.

However, don't stop retirement savings indefinitely and do not stop policies that will incur a penalty for suspending payments.

"Every time you pay interest on debt you borrow from the future and your future earnings. You're paying that to the creditor. It compounds over time. If people understood that total cost, they would be more reluctant to use debt," says Grant Locke, head of

The "snowball method" is an effective debt-reduction strategy because it can be deployed to pay all of your debt. You start with your smallest debt, which is usually the most expensive if it's a pay-day loan or personal loan. The idea is to take every extra rand you can find from your budget so that you can pay more than the amount due on that account every month until you've paid it off.

Then use the money you were spending on that debt to throw at your next debt. This has a snowball effect and can result in you paying off your home loan ahead of the contractual term.