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Many South Africans are struggling to make ends meet in the wake of the Covid-19 pandemic, lockdown restrictions, curfews and civil unrest.
Earlier this year, Momentum Investments warned that many are cashing in on savings and investments to bail them out of financial hardship.
While tapping into your reserves may seem tempting this should be a last resort. Here are seven actions you can take and tools you can use now to ensure you don’t drain out your finances during this difficult period.
1. Find out if you have credit life insurance
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Hayley Parry, money coach and facilitator at 1Life’s Truth About Money, says: ‘In the first round of lockdowns some of the financial services companies did communicate to people that there was this tool available to utilise but in most cases it’s not something that people know about.’
To find out if part of your premium has been dedicated to credit life insurance, contact your lending provider to find out more.
Parry says: ‘Ask if you can utilise this now, especially if you’re out of work. For those that have lost jobs it is by far the best tool to utilise.’
2. Make use of payment holidays
Some financial services companies are open to allowing customers to make use of “payment holidays” where they don’t have to make payments for one or a few months. Parry says: ‘For a lot of people this is a great way to protect their cash flow and ride out a period of little to no income.’
Bear in mind that the amount that you owe will continue to accrue interest. Once you’re back on your feet financially you can always make top up payments to play catch up.
3. Keep your home in good condition
Your buildings insurance only covers you for unforeseen future events so any wear and tear will not be covered.
‘The onus is on you to maintain your buildings to avoid wear and tear that might later cause or contribute to damage like worn waterproofing or blocked gutters,’ says Wynand van Vuuren, client experience partner of King Price Insurance.
4. Inform your insurers of any reduced risks
Insurers base premiums on risk. If your risk reduces you could end up paying less. So, for example, if you’re driving less, you should inform your insurer of this.
‘You should see a difference in your premium. You can also lower your risk by improving your home security, for example, and parking in a garage rather than on a pavement,’ says van Vuuren.
5. Ensure you have emergency savings
It may sound counter-intuitive to do this if you’re struggling financially, but it’s important to ensure you have some emergency funds to rely on. Try and create an emergency nest egg from expenses you’re no longer paying for during this time – like transport.
If you don’t have such a cash cushion you may be forced to dip into things like your pension or long-term investments. ‘We saw this during February and March last year where people had to encash their investments at a substantial loss, but the recovery was sharp and resulted in higher market levels. If they had three months’ worth of salary in cash, they could have ridden it out,’ points out Richard Bray, head of strategy at Amplify Investment Partners.
6. Diversify
It’s important to spread your risk by diversifying your savings across various asset classes and alternative investments. This includes investing your money in easily accessible accounts as well as in funds that can go up and take advantage of downturns.
‘Traditional unit trusts tend to perform poorly during events that create volatility when security prices are not aligned to fundamentals whereas hedge funds can go long undervalued securities and short overvalued securities in equity or fixed income markets. The uncorrelated nature of hedge funds offers an additional source of diversification, significantly improving the overall risk profile of a multi asset unit trust portfolio,’ says Bray.
7. Keep a cool head
Last year’s economic lockdown was arguably the most economically disastrous event in a long time. However, the JSE All Share Index and other major global indices have recovered to similar, and in some cases, higher levels than the market crash in February/March 2020.
Bray advises: ‘Those who sold out into the decline made significant losses. Those that kept a cool head and rode the storm saw significant growth in their long-term savings.’
