With the rising cost of living, it may be unclear how much money South Africans need to survive, both while earning a living, and once retired.
We have a look at some basic expenses and their current costs, and we consider how much South Africans need to survive during retirement. We also offer some general advice for staying afloat.
Tip: If you’re falling into debt because you’re struggling to make ends meet, click here for assistance.
This is how much money you need, to survive today
Gareth Price, founder of both Cloudworx and Investmint, and CFO at BackaBuddy, says that different people have different ideas about what it means to survive financially.
He explains that, in general, households should prioritise the basics, such as food, rent, transport, electricity, education, burial insurance, debt repayments, basic hygiene, and medical products. He believes that, on average, these costs will add up to between R7,000 and R9,000 per month.
“If you want to move into the middle class, school fees and rent become more expensive, and you may choose to purchase a car rather than relying on public transport. On top of this, you may take out medical aid, and perhaps invest in a savings plan. Here, you’re looking at an income of between R35,000 and R45,000 per month,” says Price.
He notes, however, that the vast majority of South Africans earn less than R3,500 a month, with the top 1% earning around R45,000. To put this into context, a state old-age pension grant offers a maximum of R1,890 per month, or R1,910 if you’re older than 75.
What about the future?
Christelle Louw, advisory partner at Citadel, says that, to retire sustainably and securely in South Africa, you will need at least 20 to 30 times your required annual expenses as accumulated capital over your lifetime.
According to Statistics South Africa’s employment report for the fourth quarter of 2021, the average worker’s salary in South Africa is R23,982 per month. This amounts to R287,784 annually, which would require a minimum of R5,755,680 (R287,784 multiplied by 20) for a sustainable retirement.
“Careful financial planning is essential during your lifetime to be in a position to have enough. This means that you should start early and keep putting money away,” says Louw.
She adds that financial independence is only achieved by 6% of the population, and that 94% of South Africans will not be able to sustain their income from their savings. This means that their lifestyles will have to be adjusted downwards during retirement, such as living in a smaller home.
How to overcome the most common financial concerns
Sustaining their standard of living as they grow older is a common concern for South Africans, Louw says.
“They are also concerned about the cost of quality education for their children, rising costs of administered items such as rates and taxes, and the inability to break out of a debt cycle,” says Louw.
Eclipsing these fears are potential job losses and the financial impact thereof, such as financial dependence on the state, and relying on the support of children and family.
Take the following steps to ensure your financial security:
- Make sure your salary covers your expenses. Assess your expenses every month, and identify what you need to pay. Get rid of your debt as quickly as possible, and find out whether you can access your current services for a better price. In doing so, you will be pleasantly surprised at how much you can save.
- Follow strict budgeting rules. Don’t try to keep up with friends or family in a stronger financial position. Start budgeting to ensure you have control of your financial destiny, and revisit your budget every month so that you’re aware of your expenses.
- Save enough for a rainy day. Accrue an emergency fund of at least three months’ worth of expenses for unexpected events, and keep this account topped up. Do not keep these savings in your general account, keep them separate. It’s worth opening a tax-free savings account and contributing to it over your lifetime.
- Protect yourself against rising prices. Revisit your spending patterns and substitute expensive items with alternatives. Many people sold their vehicles during Covid and are now using other means of commuting. Be critical about spending money and what you buy, and focus on adjusting your spending during difficult times.
Louw says that you cannot expect your situation to change by chance – you need to take control of it yourself.
“Tighten your belt and make saving a new way of living. Consider adding to your qualifications and skill set, and look for alternative income-earning opportunities to supplement your lifestyle,” says Louw.
If the rising cost of living has driven you towards debt, you can consolidate it to improve your cash flow.