© Frank Magwegwe 2017

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What is your money mindset?

A mindset is defined as a set of attitudes and beliefs that affect one’s behaviour. So what’s a money mindset? Simply, it’s your money belief system. Common money beliefs can be uncovered by completing this statement: ‘Money is…’ Here are some examples:

  • Money is security
  • Money is pleasure
  • Money is happiness
  • Money is unpleasant
  • Money is power
  • Money is self-worth

Why is the downgrade important?

The recent downgrade is important because sovereign credit ratings affect South Africa’s borrowing costs. South Africa’s 2017/2018 budget is R1.56 trillion and taxpayers contribute R1.41 trillion towards this, leaving a R150 billion shortfall. This shortfall means the government must borrow from local and international investors. The ratings downgrade means the government will have to pay more towards interest on debt which results in fewer funds for infrastructure and service delivery spending. The rand may decline and this may lead to higher interest rates to keep inflation within the Reserve Bank’s target range of 3 to 6%. South Africa’s economic growth will likely slow down, business and investor confidence will likely decline, and State-Owned-Enterprises higher borrowing costs may be passed to consumers.

What is the impact of the downgrade?

Your salary will likely not be increased due to the possible slowing down of the country’s economy and its impact on businesses. This may result in job losses in various industries. Rising inflation coupled with no salary increase means you will have less money to pay for goods and services that now cost more. Some positives are the benefits from higher interest rates on bank savings and capital flows chasing the high interest rates. The negatives far outweigh the positives and also include difficulties in repaying any form debt such as car, mortgage, unsecured and revolving credit loans.

The downgrade and your money mindset

Like many difficult things in life, a downgrade is not the end of the world. While changing your mind is not always easy, changing economic times demand that you shift your money mindset. And the change formula:  (D x V x F) > R, can help in this regard. The formula says three factors must be present for meaningful change to take place; because the formula involves multiplication, if any of the factors is missing, then you are not going to be able to overcome resistance. The 3 factors are:

D = Dissatisfaction with the status quo.  Continuing “as is” is not an acceptable option.

V = Vision of what is possible.  There is at least a vague sense of a better future.

F = First practical steps that can be taken towards the vision.  These steps are concrete and acceptable.