Handling hard financial times
The Covid-19 pandemic has hit us hard, the latest research into the saving and investment behaviour of working urban South Africans shows.
Most people are earning less since the start of lockdown and most households are also taking care of additional adult dependants. These are just two of the key findings in this year's Old Mutual Savings and Investment Monitor.
Money asked financial advisers to suggest what you can do if you relate to any of these findings.
1. You're earning less
As many as 57% of respondents in the Old Mutual survey say they're earning less since the start of lockdown.
Mduduzi Luthuli, an investment manager at Luthuli Capital, says if you are one of them, accepting your current reality and taking accountability are key.
Rework your budget and rethink your savings. If you aren't contributing to an emergency fund, make sacrifices so that you do, because with less discretionary income you won't be able to absorb any future shocks. Without a rainy day fund, you'll have to borrow money, which will cost you.
2. You have extra dependants
The incidence of having adult dependants has increased from 43% in 2019 to 52% in 2020.
John Manyike, the head of financial education at Old Mutual, says you must take your family into your confidence and be very clear about your own financial obligations, including your debts.
"Explore [funding] alternatives with the family. For example, if one family member has space to add a room to their home to generate extra income, that could help subsidise maintaining the adult dependant in the family. Sweat whatever assets you have," he says.
3. You're caring for children and parents
The Old Mutual Sandwich Generation Indicator has increased from 34% in 2019 to 42% in 2020 (up by 15% since 2015).
Supporting your parents when you have dependent children can drain not only your finances but family relationships.
Kate Brown, a director and certified financial planner at Fiscal, says if you have a parent or family member who is likely to
become dependent, prepare for it by talking about it as a family. "If a parent is likely to run out of money, say in five years, and that parent has three children, we encourage each of them to start saving on a monthly basis now, adjusting their lifestyle to accommodate this," she says.
In five years' time the savings can be switched to the parent, giving them a cash flow, and the pot of money already saved can be drawn on in an emergency.
Adjusting your lifestyle ahead of time will also help avoid resentment, which is neither good for the person giving nor for the person receiving, she says.
Family members have different abilities to provide financial support, but those who can give less financially may be able to give time, administrative skills, emotional support and empathy, she says.
Brown says that if you are being supported by family and you waste money and resources, it's likely to cause resentment.
4. You're dissatisfied with your finances
The Old Mutual survey shows South Africans' satisfaction with their financial situation is down from 6.3 (out of 10) last year to 5.3 this year.
If you are dissatisfied with your situation, you need to build resilience and to do that you need a growth mindset, psychologist and life coach Dr Tshepiso Matentjie told participants in a recent Momentum webinar. A growth mindset is a world view that you can change your reality and your future based on your effort and persistence, she said.
"It's about being able to embrace challenges and understanding that you can work through obstacles because you're a lifelong learner. Whatever the challenge, see it as a teachable moment. A growth mindset allows you to be tenacious and recognise the locus of control is within you."
5. You can't afford your credit card repayments
Only one in two credit card holders are able to comfortably make their repayments every month, according to the Old Mutual survey.
Debt counsellor and financial coach Philip Nortje says that if you're in this situation, you need to stop spending on your credit card but keep on repaying it - even if all you do is cover interest and fees every month.
Notify your creditors that you need to pay less and keep a record of your payment arrangement.
6. You have a personal loan
As many as 43% of respondents have personal loans from a financial institution. This is up from 21% last year, Old Mutual says.
A personal loan is one of the most expensive forms of credit, because it's unsecured. "If you can't avoid taking a loan, at least use cheaper sources of credit," says Nortje. For most people it's their home loan.
Also, reflect on why you took the loan, he says. "Was it to advance yourself, by studying further or starting a small business, or did you borrow to fund your lifestyle, which is not prudent."
Remember that you can't borrow your way out of financial trouble. You have to live on less.
7. You've cashed in savings or investments
Old Mutual says 23% of respondents have cashed in savings or investment policies over the past four months.
Brendan Dunn, a certified financial planner at Verso Wealth, says if you need to access savings you may have to put some of your goals on hold until you're back on your feet.
If you're careful this doesn't have to be a complete derailment, but only a stop along the journey towards your goals, he says.
After the crisis, reassess and adapt your financial plan to your new circumstances. "A step forward is a step forward, no matter how small," Dunn says.
8. You're feeling stressed about money
Old Mutual says 58% of South Africans are experiencing high or overwhelming stress about their finances - and this measure is up 20% from last year.
Tumi Mothoagae, the head of business preservation at Liberty, says if you're feeling high stress about money, review your budget.
If you've taken a pay cut, cut out all unnecessary spending, pause your investment contributions and call your creditors to explore relief options.
If that doesn't work, talk to your financial adviser about using some of your savings to alleviate financial pressure.
She also recommends starting a side hustle to make money.
9. If you lose your job, you’ll be able to cover one month’s expenses
Old Mutual says 40% of South Africans say they have enough money to last one month or less if they lost their jobs.
Ray Mhere, the head of investment distribution at Momentum, says this correlates with the results from the Momentum Unisa Wellness survey.
Having a buffer for a month at least gives you a small window of opportunity to make a plan, he says.
If you lose your job, you have to face your situation, he says. “Sit down with your family and let them know... They need to understand that times are tough, but also that if you all work together, you can make it work.”
Reach out to your support system. “Often times, we keep heavy burdens to ourselves while we have wonderful circles of friends and family that are there to support us.”
Mhere says that if you think there’s a chance of you losing your job in the near future, engage a financial adviser, to help you plan – someone to partner with and coach you on your journey to achieve your financial goals.
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.