Fear and anxiety can lead to procrastination and inaction. By all accounts, we will be confronted with Covid-19 in South Africa for some time still. Time is of the essence when it comes to budgeting and financial management, and the cost of doing nothing can be great. As South Africans, we are used to being resourceful and adaptable in times of crisis, so let’s use this to our advantage. Most of us have had our budgets interrupted by the pandemic, but there are steps we can take to adapt and adjust.
Approaching your budget
Put health and safety first
For most of us, our health and safety – and that of our loved ones – will be our central focus. A values-based budget with the health and safety of your family as the central objective will help you to evaluate each line item and cut costs where necessary. Medical aid, gap cover, prescribed medicines and medical treatment remain essential, and these costs should not be compromised on. Be prepared, however, to compromise on what constitutes ‘necessary’ expenditure.
Short term pain
Bear in mind that you’re preparing a short-term survival budget and that these austerity measures will not last forever. Err on the side of caution and create a six-month survival budget, bearing in mind that latest reports estimate the Covid-19 curve will reach its peak in around September 2020. While lockdown is due to be lifted on 1 May, there remains a strong chance that the lockdown will be extended further or lifted through a phasing out of restrictions. Err on the side of caution and develop a survival budget that spans a period of at least 6 months.
Allocate your monetary resources
Make a full assessment of all your financial resources including your access bond, credit facilities, emergency funds, cash in the bank, discretionary investments, tax-free savings accounts, and even preservation funds, if necessary. Now is the time to take a holistic view of your available resources, and to employ a smart strategy for them.
Over-buying and stockpiling
Most of us are comforted that large retailers and small businesses alike are able to continue providing food, groceries and essential items throughout the period of lockdown. There is therefore no need to stockpile or over-buy goods, and doing so may have an adverse on your finances and cashflow. Plan for a weekly grocery shop using a carefully compiled shopping list that is aligned with your budget.
Make smart financial decisions
Now is the time to make well-considered financial decisions. Avoid the temptation to invest in ‘get-rich-quick schemes’ or speculate on the stock markets. Not even the experts can predict how local and global markets are going to react as the pandemic creates its epicentre in the United States and takes root on the African continent. Investing money into schemes to buy large volumes of surgical masks, gloves and hand sanitizers can not only lose you money, but can find you on the wrong side of the law.
Identifying areas of saving
If you’re in lock down, there will be a number of areas that you will no doubt have cut costs on over the last three weeks. With time on your hands, go through your bank account statements and quantify how much money you have saved as this will be money you will be able to reallocate for other purposes. These budget items may include:
Fuel and transport costs
Other than the odd trip to the local supermarket or pharmacy, most of us have been house-bound – and this should translate into considerable savings on fuel and hail riding, especially for those who commute daily for work.
Entertainment & convenience spend
Go through a pre-lock down bank statement and calculate how much you would normally spend in a month on eating out, movies, theatre, pubs and other social events. Don’t forget to include the costs of your morning takeaway latté, mid-week takeaway meal or convenience purchases.
Clothing and luxury goods
With shops only being permitted to sell essential goods, make a list of what you have not spent money on over the past three weeks, including items such as cosmetics, clothes, beauty treatments, spas and salons, hairdressing and homeware.
Cigarettes, alcohol and sundries
Similarly, add up how much you’ve saved on items such as alcohol, cigarettes, parking, tipping and shopping aisle snacks.
Undertaking proactive cashflow management
Interest rate cut
With prime lending rate having been reduced to 7.75% effective 15 April 2020, set out to recalculate your home loan, vehicle and credit repayments. While first prize would be to leave your debt repayments at their current levels, you may need to reduce your loan repayments in line with the interest rate cut in order to assist with cashflow during this period.
Proactively manage your debt
Be intentional about developing a plan to manage your debt. If you foresee any problems with servicing your debt over the next 6 months, take steps immediately by contacting your creditors and negotiating terms. Your creditors are likely to be more sympathetic if you communicate with them proactively before defaulting on your repayments.
Review short-term insurance cover
If you haven’t reviewed your short-term insurance in a while, use your time in lockdown to do a full inventory of your household effects. You may find that you are paying insurance for items you no longer have, and this could reduce your premiums. You may have improved your home security system since implementing your cover and this could similarly have a favourable effect on your premiums.
Review your life cover
This could also be a good time to review your life cover to ensure you are not paying for cover you no longer need. Ask your financial adviser to review your risk cover requirements in respect of life, disability and severe illness, and make adjustments to your policy if appropriate.
Review outsourced services
During lockdown, you may have come to realise you can manage some previously outsourced functions yourself. Pool and garden maintenance, pet grooming and bin cleaning are just some examples of services that are regularly outsourced and are areas where cost-saving could take place.
Go through your bank statements and do a full inventory of your memberships and subscriptions, and then check whether you are able to freeze or put these fees on hold for a few months.
Medical aid premiums
Some medical aids have made provision for eligible members to use the balances in their savings accounts to pay their monthly premiums. Their criteria are quite strict and are dealt with on a case-by-case basis, but if you are in financial need make contact with your medical aid as soon as possible to discuss a solution.
Pocket money & allowances
With most children being homebound, you may want to consider reducing their allowances in line with their needs. This is an opportune time to talk to your children about where money comes from, why budgeting is so important, and how everyone in the family has a role to play in making compromises and reducing expenditure
Put investment contributions on hold
If you are concerned about cashflow, you can consider putting some of your investment contributions on hold where possible. If you’re contributing towards a discretionary investment, you can issue an instruction to stop your debit order. Similarly, if you’re contributing towards an RA on a unit trust platform, you can put your contributions on hold and restart them at a later stage without fear of penalties.