The rising cost of living is already being felt across households; with low-income groups particularly vulnerable to high food costs, middle-income earners are in a tough position too. In difficult economic times, it is important to put things in place while there is still time. So here are five important steps you can take to manage looming interest rate hikes.

1. Manage your debt

It is well worth trying to pay off as much debt as possible now, because as interest rates rise, so do debt repayments. In this way, loans will then tie up cash flow which could be better used elsewhere. Further to this, in difficult financial periods, there is a far higher risk of defaulting on payments which will have a bad reflection on your credit rating, jeopardising future credit applications. However, if you find you do have to take on debt, make sure you are very clear on your credit status and what is financially sustainable. 

2. Shop around for better rates

Take care not to accept the first housing loan which is approved. Your home bank should offer you the most attractive interest rates on a home loan because they will likely want to keep all your business in one place. Remember that banks are in competition with each other for your business and so it's well worth holding out for the right deal. 

3. Carefully track your spending

While budgeting can often feel emotionally constraining, it can also be very empowering. Enabling you to cut expenses and increase savings. When you don’t monitor your cash flow, you can’t make contingency plans for unknown expenses. A common approach is to save what is left after spending. But actually, a far better approach is to spend after saving. This requires structured thinking. Remember that you may be in a more vulnerable position than you think you are and ask yourself if your family could practically afford one medical emergency. This extends beyond whether you have medical aid cover and relies on bulk savings which you may suddenly need to see you through unpredictable times, comfortably. 

4. Negotiate hard when it comes to insurance premiums

Carefully negotiating your annual insurance premiums can create big savings. Remember that if you haven’t claimed from your insurer that year then you are in a position to potentially stall your next premium increase. Also, if you have a lot of assets covered by one insurer (like your car, household contents, and medical) then you are in a stronger position to negotiate your global rate. 

5. Think savings plus more

Are you able to generate a second income from financial markets? Consider investments in interest-earning securities that will generate a passive income from excess cash. While it is essential to have savings, it is also a well-considered trade-off to have that cash sitting in short and long-term investment instruments. This puts idle cash to work and stands to make you some extra pocket money. In this way, what is important is not promoting one type of savings over another, but rather re-thinking how to build a passive income from existing funds. 

The bottom line

It is not yet clear if we are facing a recession yet, but it's important to consider that there may be one coming so that you can strengthen your position in the meantime. Interest rate hikes will have a significant effect on your financial position, so ensure that you are cleaning house in the meantime and making smart and strategic decisions in order to ensure financial security down the line.

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