What the 2021 Budget Speech taught us 📝

The days leading up to the budget speech are always filled with great anticipation, and this year was no exception, with South Africa’s enormous R19.3 billion vaccine drive looming in the background. Finance Minister Tito Mboweni delivered his budget speech on 25 February, and while we learned that we won’t be funding the vaccine drive by paying more taxes (phew!), the sigh of relief was soon extinguished when it was made clear that South Africa “owes a lot of people a lot of money.” Here are some lessons in debt you can take away from this year’s budget speech.

Don’t owe a lot of people a lot of money

South Africa broke 22seven’s first rule to financial freedom: spend less than you earn. Consequently, the country has to borrow more money to balance the books. However, this money then goes into repaying the interest and capital of this debt and creates a downward spiral. South Africa’s debt-service costs were higher than originally estimated in the 2020 budget speech. A lot higher. R3.6 billion higher, that is. Although the country’s economy strengthened a tad, the borrowing requirement will be more than R500 billion a year for the medium term and the estimated gross loan debt will increase by R1.25 trillion over the next 3 years. This means that we are going to owe 31.6% more than we already do.

Although easier said than done, to avoid debt, you have to stop incurring too much of it. Avoid the downward spiral that too much debt creates by managing your finances better (setting up a budget, saving for future expenses, having an emergency fund, etc.) and making sure you’re not living above your means. If you’re already in debt, try all debt-management strategies rather than borrowing more, since borrowing plus more borrowing simply equals more debt.

Getting out of debt takes time

The country estimates that it will earn more than it spends in 2024/25. It can take years for a country, and individuals to alleviate debt or to become debt-free, which is only achievable if there is a good strategy in place to tackle debt. Create a game plan and start working on reducing your debt, but don’t lose hope if it doesn’t happen overnight. It’s also important to constantly stay aware of your game plan, and monitor your strategies to contain debt, just as the finance minister will monitor South Africa’s game plan. Luckily, 22seven helps you keep a bird’s-eye view of all your finances.

Dala what you must

As Tito Mboweni stated in his speech: “We must shore up our fiscal position in order to pay back the massive obligations we have incurred over the years.’’ And that’s exactly what someone has to do if they’re struggling to become debt-free. Increase income, cut spending, cut spending again and then try to find a second or third side hustle if you must. Carrying on in the same way as you have for years will only yield the same results it has for years. Find innovative ways to better your position, just as South Africa has found ways by increasing tax on cigarettes and alcohol.

As the minister of finance concluded: ‘’The path is challenging but achievable.’’