Question:
We bought our house a year ago for R820 000 with a mortgage of R735 000. The property's value is about R1-million.

Every month we struggle to make ends meet with a shortfall of between R2000 and R4000.

We will only be able to get about R950 000 for our house. Should we put it on the market?

I am afraid that we will no longer be able to pay the monthly instalments and that our house will be repossessed. What should we do?

Answer:
If you manage to get R950 000 for your house you will realise a profit of R215 000 which should give you some relief. However, a price of R850 000 would be more realistic in this market.

Let's assume you get R950 000. You could settle your arrears and pay off the bond, but you would need to find somewhere else to live. A rental property would probably cost you about R7000 per month for a small, two bedroom apartment in a complex.

If you wanted to re-enter the property market you would need to save up at least R150 000 to cover the costs and deposit. It will be difficult to start from scratch so you should try and hold onto your home.

You did not say whether or not you are already behind with your payments. The problem is that it could take three to six months to realise the cash and by then the bank would have in all probability foreclosed on you.

You need to find a way to cut costs in other areas of your budget.

Areas where you can save are:

  • Cell phone bills

  • Eating out

  • Entertainment

  • Children's extramural activities

  • Groceries

  • Subscriptions

  • Cigarettes

  • Alcohol

  • Clothing

  • Petrol

How? Well, I would guess that half of all phone calls we make are unnecessary. Just look at your dialed calls list and get an estimate of how many calls could have been eliminated. I am sure that the network providers have made vast sums from the word 'OK'. How many times do we SMS that response?

Eating out is not cheap — we spend R30 on one sandwich, but we could make six sandwiches at home for the same price. A cup of coffee at home costs about 40 cents per cup, but at a restaurant it can cost between R7 and R10. It does not seem like much, but if you buy a cup of coffee every day at work it works out to R140 per month.

Movies, going out to clubs and arcades are expensive. By just cutting out one trip to the movies each month you can easily save R200 per month for a family of four (if you tally up drinks and popcorn).

While we would all like to believe our child is the next Vanessa May asking them to take break for a few months to catch your breath is not going to affect them either way. The R600 to R1000 per month that you spend on these activities could make a huge difference in your finances.

We often go into 'automated mode' when we grocery shop. If we paid a little more attention we could shave as much as 30 percent off our bills. Target the junk foods and you will be healthier too.

If you subscribe to a TV service you could be paying as much as R650 per month.

I don’t have to tell you how much money is wasted on cigarettes and alcohol. Just a pack a day can set you back R15. That’s R450 per month, not to mention the higher premium you have to pay on your medical aid payments and life insurance. Some people spend more on drinking at clubs than they do on their retirement funding.

Most of us could go an entire year without buying more clothes and still look good. Do we really need five white t-shirts and 10 pairs of shoes?

We take many unnecessary trips in our cars. Cutting out one a week is not too difficult — you just have to plan your trips a little more efficiently.

Add all these savings up and you could shave as much as R2000 to R4500 off your expenditure. You should not just aim to maintain your payments, but rather eliminate some bills. Do so and you will be able to build in a cushion against further interest rate increases. The best case scenario would be to continue with the higher payments even if rates decreased. Then you would fast track your way to complete financial freedom.

If you are already struggling and you just can't find any more slack in your budget then you need to look at making more money.

Perhaps you could take in a tenant, get a part time job or look for a better job. If that’s not an option you may need to see a debt counselor. You can also talk to your financial institution — they would far rather help you reschedule payments than repossess a car or home. Just make sure you talk to the right person though — call centre staff are ill equipped to deal with requests of this nature. Ask to speak to the person who heads up credit control. A call centre person may brush you off.

You don’t have time to lose. If you are worried about more interest rate increases it's your signal to start cutting back. Don’t wait for Tito’s announcement.