The cost of living in South Africa is accelerating at an alarming pace, with inflation jumping to 4.5% in May 2026 – the highest rate since July 2024, according to Stats SA’s latest data. Further to this, is an increase in financial pressure, should the South African Reserve Bank (SARB) decide to further raise interest rates after the latest 25bps hike, making the cost of borrowing even higher. To stay afloat, many South African households are prioritising essentials such as food, transport and electricity, while cutting back on discretionary spending like holidays and luxury goods.
Where families are reluctant to reduce non-essential purchases, however, many are instead turning to high-interest debt to cover the shortfall – a concerning trend that risks long-term financial strain. This, along with withdrawing from long-term investments or retirement savings to cover short-term gaps, are among the most common mistakes during periods of economic pressure. Both decisions undermine future prosperity and leave households more vulnerable over time.
In this inflationary environment, it is critical to distinguish between reactive cost-cutting and a more structured approach to managing finances. Reactive cost-cutting involves trimming expenses in the moment without a long-term plan, which can leave households vulnerable when unexpected costs arise. A structured approach, by contrast, is built on proactive budgeting, with a well-designed budget allowing flexibility – “room to move” – during challenging periods.
Five practical strategies stand out in ensuring this kind of structured approach:
- Build an emergency fund. A good rule of thumb is to save the equivalent of six months of living expenses. This helps households manage unexpected costs without dipping into retirement savings or long-term investments
- Avoid unnecessary debt. It can be tempting to take on the maximum credit offered for large purchases like a home loan, but by borrowing conservatively, households create a buffer that protects them if circumstances change.
- Automate savings and retirement contributions. By automating the minimum contributions through debit orders, households can ensure that their long-term goals remain on track.
- Keep your lifestyle in check. Lifestyle inflation – where expenses rise in line with income – remains a major risk to long-term progress. To counter this, savings and investment contributions should increase at a rate that outpaces inflation whenever income rises.
- Be strategic with bonuses and tax refunds. Fixed expenses such as bond or car repayments do not escalate in the same way as earnings, creating an opportunity to channel additional income into building wealth. Windfalls such as bonuses or tax refunds should be treated strategically, with at least 80% allocated to long-term savings rather than lifestyle upgrades.
More generally, however, good financial habits begin with saving first and spending what remains, rather than the other way around. This requires disciplined budgeting – tracking actual spending against planned allocations and regularly reassessing non-essential expenses.
In practice, that might mean reviewing short-term insurance annually to avoid over-insuring or paying for outdated cover and reconsidering multiple streaming subscriptions that can add up quickly. Equally important is staying invested for the long term and ignoring short-term market fluctuations. Consistency and patience in investing are what ultimately deliver stronger and more sustainable financial outcomes.
Financial resilience ultimately depends as much on mindset as it does on income. While income is an important input, it is not the sole determinant of financial success. Controlling expenses, responsibly managing risk, staying invested for as long as possible and using tax-efficient investment vehicles all play a critical role. Even small amounts invested early have the potential to compound significantly over time.
For households looking to regain a sense of control, accountability is key. Working with a financial adviser can help maintain discipline and align decisions with a financial plan, while supporting more structured budgeting and long-term planning.
At times like these, when the cost of living continues to skyrocket, discipline – not drastic cuts – is what ultimately protects long-term financial progress.
Written by Haydn Johns, Head of PSG Life and PSG Invest at PSG Wealth