Many South Africans are currently feeling the impact of the Coronavirus pandemic. Fear and panic are understandably rife, and most of us are concerned about our financial situations. There is no doubt that tough times lie ahead for us and now is the time to make well-informed decisions to fortify our finances for the road ahead. Here is what you should be considering:
Act now: Now is not the time to panic, but now is the time to act decisively. Ideally, schedule a video conference with your financial adviser and do a thorough review of your financial affairs taking into account how the Coronavirus may impact on your earnings and income over the next 6 months at least.
Budgeting: Undergo a ruthless budgeting exercise and cut costs wherever possible. In particular, give careful thought to those line items that can be frozen or put on hold over the next few months. For instance, you may want to consider freezing your gym membership or cancelling certain subscriptions. Don’t forget to account for items that you will be able to save on going forward such as eating out, entertainment, Uber rides and fuel.
Cashflow: With your revised budget, undertake careful and conservative cashflow modelling. Stress-test all your assumptions and consider ‘worst case’ scenarios when doing your forecasting.
Medical aid: Make sure that your medical aid premiums are up-to-date and that there has been no lapse in your membership. Do not cancel your medical aid in an attempt to reduce expenditure.
Gap cover: If you do not already have a gap cover policy in place, please consider putting you and your family members onto a policy.
Emergency fund: If ever there was a time to have a solid emergency fund, that time is now. Give careful thought as to how much money to keep in your emergency fund and make sure the funds are housed in an instantly accessible account with no red-tape on withdrawals.
Investment contributions: If you are concerned about cashflow, consider putting your investment contributions on hold. Remember, if you are contributing towards a unit trust RA you can put your contributions on hold indefinitely with no penalties being charged. If you are contributing towards an insurance RA, you may be penalised for stopping your contributions, so be sure to find out what the implications of doing so are beforehand.
Home Loan: If you are worried about being able to afford your bond repayments over the next few months, speak to your bank immediately about the option of taking a payment holiday. Many banks provide customers with the opportunity to take a three-month payment break from their bond repayments.
Credit card and retail accounts: Similarly, if you foresee that you will have problems servicing your credit card or retail debt going forward, contact your creditors now to make arrangements. Most banks and credit providers allow for three-month payment holidays.
Scams and frauds: As in the case of any crisis, there is no shortage of fraudulent schemes and scams making the rounds. Now is the time to be hyper-vigilant and to guard against being defrauded. Question everything, do your research, and consult with your financial adviser if you are uncertain.
Capital expenditure: Now is not the time to make any large purchases or incur big capital expenditure. In uncertain times such as these, err on the side of caution and rather put your plans on hold.
Cashing in: If possible, avoid cashing in your investments and/or accessing your retirement funds prematurely. Besides for the possible tax and CGT consequences of doing so, you will be jeopardising your future financial security.
Stock picking: With investment markets all over the world in turmoil, many speculators and opportunists are using this period of chaos to try and ‘make a quick buck’. We caution against this type of behaviour and advise clients to stay invested for the long-term.
Insurance: Again, avoid the temptation of cancelling your life or disability cover in order to cut costs. While the mortality rate of Coronavirus is relatively low, bear in mind that it may be very difficult to apply for life cover at a later stage. On re-application, you will be underwritten and may have exclusions placed on your cover. If you think you may be over-insured, contact your financial adviser for a review and cut-back your cover only where appropriate.
Stockpiling: Unnecessarily stockpiling food and supplies can compromise your cashflow and put you under unnecessary financial pressure. Be sensible about your purchases and avoid panic. Use this time to set up your online shopping accounts so that your household is fully geared for online shopping if necessary.
Support local business: Wherever possible, support local businesses. Buy vouchers from your local hair or beauty salon to use at a later date as this will help them with their cashflow. Check whether your local restaurants and coffee shops are offering home delivery services, or buy gift cards from your favourite local shop, theatre or gift store. Find out whether your local businesses have online shopping options and support them wherever possible.
Investment markets: Tracking the movement of the stock markets during this crisis is going to create feelings of fear and panic which, in turn, can lead to irrational decision-making. If you are invested for the long-term, guard against being fearful of market volatility during the pandemic. The markets will eventually recover and staying the course will yield better results.
Update your Will: Make sure you know where your Will is and update it if necessary. You may also want to consider signing a Living Will or Advance Healthcare Directive.
Power of Attorney: If you are in quarantine or self-isolating, you may want to consider giving your spouse, partner or a family member Power of Attorney over your financial affairs.
Invest in yourself: Use the extra time to invest in yourself, develop a new skill, learn a new language, or set up a business venture to generate an alternative source of income. It’s at times like this that one truly appreciates the value of passive income.