When it comes to personal finances, it’s safe to say that most South Africans are feeling fairly vulnerable. With months of lockdown behind us, most of us have had time to take careful stock of our finances and put mechanisms in place to survive the next few months of uncertainty. With the benefit of some hindsight, let’s take a look at what the coronavirus pandemic has exposed when it comes to money:
Business compliance is critical
Businesses that are not correctly structured or registered will have been more severely impacted as a result of this pandemic. Through the various relief measures that government has put in place, it has been made abundantly clear that only those businesses who are fully compliant and in good standing with SARS will be able to apply for relief. Whether you’re a sole proprietor, partnership or private company, your options in respect of getting financial relief will have been severely limited by non-compliance. Similarly, if your employees are not registered for UIF, you will not be in a position to apply for TERS relief and they will not be able to lodge a claim if they are retrenched. Regardless of how small your business is, take steps to ensure that you are registered for tax, UIF and that you comply with all necessary legislation.
Convenience spend is directly related to time-poverty
The busy-ness of our pre-lockdown lives left many of us feeling tired and time-poor. Lack of time can hinder our ability to do forward planning which, in turn, can impact our convenience spend. When we are pressed for time, we are more likely to spend money on ready-made meals, take-away dinners, coffee-on-the-go, Uber rides and other outsourced services. Conversely, having more time on our hands as a result of lockdown means that our convenience spend has likely reduced. That said, the challenge for us all going forward is to find a balance between being occupationally productive and while still having time to do the things we really enjoy.
Lack of adequate emergency funding
South Africans are notoriously bad savers and it is likely there are very few people who can boast that they had six months’ worth of income stashed in their emergency fund. Most of us keep sufficient emergency cash to cover unexpected medical bills, car repairs or appliance repairs, but how many of us have emergency funds to tide us through six months of unemployment or loss of income? An emergency fund is a critical financial buffer that can keep you afloat in times of crisis without you having to rely on high interest credit cards or loans. Lockdown and uncertainty regarding the lifting of restrictions will have left anyone without adequate emergency funding feeling particularly exposed.
Lifestyle creep prevents us from achieving financial freedom
When it comes to laying bare the faults in our finances, the coronavirus pandemic has been particularly ruthless. If you’ve allowed lifestyle creep to gradually gain more ground, this economic shutdown will have shone a light on those areas where you’ve been living beyond your means. Those who have been using credit to fund lifestyle costs such as expensive cars, fashion, tech gadgets and travel, and whose incomes have been affected as a result of the pandemic, will be feeling the full effects of what it means to be unable to service bad debt.
Diversification is paramount
The coronavirus pandemic has reminded us all of the need for investment diversification across all industries and asset classes. The global pandemic, coupled with Trump’s escalating attacks on China, has wreaked havoc on stock markets across the world making market timing and speculation particularly risky. Many JSE-listed companies, including Woolworths, Sasol, Spur and Harmony, have issued statements indicating the negative impact of Covid-19 will have on their trade and income. With the Chinese economy grinding to a halt, many large companies with supply chains linked to China (such as Apple) have had their manufacturing ability curtailed. Many of Europe’s large vehicle factories are on the verge of shutting down as they are struggling to source parts. Retailers, entertainment and restaurant groups, and travel and tourism companies are all suffering, and will continue to do so for some months still. As the race for a Covid-19 vaccine gathers more speed, pharmaceutical and medical technology shares will be rife for speculation. The reality is that not even the world’s smartest investors can predict what will happen on the stock market and neither should we.
Business diversification is key
It’s likely that the coronavirus has also reminded us of the need to diversify our businesses as a means of mitigating risk and creating alternative income streams. For many business owners, the pandemic has been a catalyst for innovation, creativity and ingenuity which, in many instances, has been long-overdue. For instance, a hairdresser who pre-lockdown only sold her styling services may now be convinced of the need to generate income through product sales, online tutorials, monetising a website or a combination of all. Whether you find ways to generate alternative income streams within your current business or focus on monetising a side hustle, take concrete steps to mitigate the complete loss of income.
Not doing an annual review of your finances costs money
If you’ve neglected your finances for a year or longer, you may be regretting it now. If you’ve put off reviewing your life cover, for instance, it’s possible that you’ve been paying premiums for cover you no longer need. On the other hand, you may find yourself under-insured at a time when the need for life cover is critical. If you’ve neglected to keep your Will and other estate planning documents updated, you may be seeking legal advice now to get your affairs in order. Similarly, if you’ve been putting off making investment decisions, you may have missed out on recent market returns. Not regularly reviewing your medical aid options may mean you are stuck on a core hospital plan for the remainder of the year when you should ideally be on a more comprehensive plan option.
Health is a financial priority
What makes Covid-19 particularly frightening for most of us is the uncertainty around where the virus: how and where it started, whether it mutates, why it affects some people worse than others, what the long-term effects on the body are, whether a vaccine will be found. For most of us, it’s given us cause to reflect on our mortality and to make our health – and that of our loved ones – our first priority. Financially, we’ve given priority to securing our medical aid and gap cover, sourcing healthy food, ordering our medicines and supplements, and buying masks. Going forward, we need to remind ourselves of the ongoing need to prioritise our health when it comes to budgeting.
Waiting to save is counterproductive
If you’ve been waiting for the right moment to start saving, that moment has already passed. As the Chinese proverb goes: The best time to plant a tree was twenty years ago. The second-best time is now. If, like most South Africans, your income has been affected by the pandemic and you’ve put together a ‘survival budget’, you may have been surprised to find that you had some wiggle room in your budget – extra money that could have been put to better use in an interest-bearing account.
Formal employment is just as risky
There is a common misconception that running your own business is ‘risky’ whereas being formally employed provides security. The pandemic has brought to light the risks associated with working for someone else and being wholly dependent on them for income. With retrenchments on the rise and our unemployment rate forecast to be at 35% by December 2020, those in the formal sector are being made acutely aware of their tenuous positions as employees. While not everyone is cut out for entrepreneurship, it helps to be aware of the risks you face as an employee and to mitigate against them as far as possible.