Seven don’ts for your money right now
While Covid-19 continues to fundamentally disrupt the world and our way of life, much of which is beyond our control, there are financial mistakes we should all try to avoid.
No-one can predict how long before things stabilise or the effect on the economy. So apply as much discipline as possible to the way you manage your money, and take all the relief you can get, advises Dhashni Naidoo, manager of consumer education at First National Bank.
During this time try to avoid these mistakes:
1. Don’t stop investing
If you can help it, do not stop investing for your retirement and your other goals. Some investments are showing big losses, but only on paper. If you disinvest now, you lock in your losses, but if you stay invested you could benefit from a big recovery.
Now is the worst time to lock in losses on equities and move to cash because interest rates have fallen, so rates are lower.
Anet Ahern, the CEO of PSG Asset Management, says that though it’s extremely difficult to do so, you need to stand back and review where your money is invested and be sure you have enough money allocated to riskier asset classes such as equities to enjoy the market recover when it comes.
2. Don’t make big financial decisions in haste
These are unprecedented times and the future — particularly for jobs and income — is more uncertain than ever. Now is the time to be extremely cautious about spending and conservative about what you can afford, Naidoo says.
“Before making any big financial decisions, you should determine if you will be able to sustain this should there be any changes to your income.”
3. Don’t cancel your insurance
Insurance, whether it’s life insurance, short-term insurance or funeral cover, it shouldn’t be used as a means to free up cash.
Naidoo says that once a life policy lapses or you cancel it, you expose yourself and your family to greater risk. It may also result in higher premiums when you take up insurance again in the future or you may be excluded from certain benefits.
Many life companies are offering reduced cover at reduced premiums to see you through the next three to six months, with the opportunity to restore your cover without further tests or medical questions that could increase your premiums.
Some short-term insurers have cut their premiums for vehicle and household cover but if you still can’t manage, consider increasing your excess, agreeing to use telematics, or shopping around to reduce your premiums.
If you have an older car that is not financed, you can consider third-party, fire and theft insurance only.
In this time of heightened medical risks try not to reduce your medical scheme cover — instead consider downgrading to the cheapest option that maintains your private hospital cover. If you cancel your cover, when you seek to join a scheme again, you could be subject to late-joiner penalties and waiting periods.
4. Don’t take financial advice from family and friends
We tend to overvalue advice from trusted friends and family because we believe they’re acting in our best interests, says financial planner Hardi Swart.
But, he says, the consequences of taking advice from someone who doesn’t have the qualifications or experience to give you proper advice that suits your circumstances could be disastrous.
Naidoo says you should rather get qualified advice from your financial adviser, credit provider, insurer or bank. An adviser is the one who will look at your entire financial situation and advise the best way to cope with least damage to your financial goals.
5. Don’t take on unnecessary debt
Where possible, avoid using credit to cover your living expenses, Naidoo says. “Remember, you’ll be saddled with it and obliged to pay it back.” Rather look at how you can reduce what you spend on non-essential items.
6. Don’t procrastinate if you need help
Apply for relief if you need it rather than stick your head in the sand. Credit bureau TransUnion says 79% of 2,000 people it surveyed this month are worried about being able to pay bills. But only two out of five had approached companies with whom they have accounts to find out about payment options.
“If your finances have been affected by Covid-19, consider the measures that your bank may have in place, including your credit life insurance that may cover some of your debts on qualifying claims,” Naidoo says.
7. Don’t drop your guard
Expect criminals to try take advantage of you at this time, often using scare tactics to fool you into sharing sensitive information.
Standard Bank warns you to protect your personal data to avoid becoming a victim of cyberattacks or phishing scams. Don’t assume that a text, phone call or e-mail claiming to be from your bank is genuine. If you’re not sure, contact your bank directly.
In addition, make sure your passwords contain a combination of letters, numbers and characters; never give your PIN to anybody via telephone, e-mail or messenger; and ensure the antivirus software on your computers, devices and phones is up to date.