I was raised with the mindset you only spend what you can afford and to try and avoid using credit wherever possible because borrowing is way more expensive. The obvious big ones you cannot really afford to pay cash for are the property you live in and the car you drive.
Recently we purchased a car and the dealership presumed we would be paying over 72 months because apparently that is the standard time line most people take these days. They have longer periods available which is utter madness considering 10 or 20 years ago the standard loan time was 60 months or 5 years. Most people would have the car for 3 or 4 years then trade it in for a newer model and the cycle would just continue with you never really owning the vehicle outright.
When we financed our new car we selected 48 months which does increase the size of the payments because you have trimmed one third off the average payment time. The shorter time frame means you are paying less interest and if you can pay extra and pay this off earlier then you own the car outright. The target I had in mind was between 2 and 3 years to have this paid off in full with no crazy balloon payments at the end which is what 99% of people do today.
Another point to make is how many people have maxed out their credit buying a car they can most likely not afford and why they have gone to the 72 month or 84 month payment deal. This is like living in a fantasy land where you physically own nothing and the cards can come crashing down at any minute leaving you in a debt ridden hole that is hard to get out of. Living beyond your means is dangerous and you are only kidding yourself by doing so.
The debt stats in South Africa tell a very bleak and depressing story with 62% of all take home pay going towards paying debt. We know how many people in SA are working and reach the tax threshold due to the tax mans records.
26 million people are registered to pay tax in SA with 8.3 million registered tax payers so the reported debt stats having 12 million adults over indebted owing R2.56 trillion does not bode well. basically every person working who pays tax is in a financial hole and has no disposable income. If you are spending R62 out of every R100 paying back debt you are left with R38. Those that miss their payments will only have more to pay back through interest and penalties so this spirals out of control quickly.
According to the debt stats 38% of those in debt are at a distressed level meaning they are failing on their debt repayments. I always have worked on a rule of thumb that debt including purchasing a property and paying a mortgage/bond must never go past 33% which leaves you with 67% to live. If you are owing 62% in debt you are working at double that rate and in time will reach 70%.
With inflation and the cost of living rising continuously the take home pay is being reduced in real time buying power so the balance of 38% is actually far less than what it was last year. The annual increase does not help as you are always going to be earning less than what your wages were worth 5 years ago.
These are scary numbers to think that 90% of the tax paying working population in SA are trapped in a debt cycle many are not going to find a way out. This is down to a lack of education understanding the basics of handling a monthly budget with hard lessons being learned.