While most of us would choose to fast forward to 2021, this year has taught us many hard lessons, including financial ones. Jaco Prinsloo, Certified Financial Planner at Alexander Forbes, reflects on some of the lessons we should all take with us.
Lesson 1: Debt can be scary
There are few things scarier than losing your income while having debts to pay at the end of the month – a position many South Africans found themselves in. In a situation like this, start by asking for assistance from your creditors and engage with them to work on a repayment plan. Being proactive about this will help you negotiate better payment terms and protect your credit record. Take advantage of the current low interest rates to pay off your debt as quickly as possible to avoid finding yourself in this situation again.
Lesson 2: The importance of an emergency fund
You never know when you might have an emergency or lose your income, and Covid-19 is the perfect example of why everyone needs emergency savings. If you do not already have an emergency fund, start by setting up a monthly debit order that automatically allocates funds to a low cost, easily accessible investment account. You can begin by saving whatever you can afford with the aim to build it up to three to six months’ worth of living expenses.
Lesson 3: Staying the course
The first few months of 2020 reminded us that markets don’t always go up. Seeing your hard earned savings going down with the stock market is very frightening, but don’t be tempted to lock in your losses by withdrawing at the bottom. The markets are on their way to recovery and the rollercoaster ride is an essential reminder to investors not to try time the market and about the importance of sticking to your long term investment goals.
Lesson 4: The importance of living within your means
Living below your means is like a lot like eating healthy – you know will have to give up a few things and that it’s going to be hard. You can find a balance of enjoying life while living below your means by following a financial plan. Set out how much you need for essential expenses like bills and debt repayments, saving for the future and spending on things you enjoy. You might need to give up a few luxuries and save for big-ticket items. Still, all the luxuries in the world can’t make up for the peace of mind financial freedom brings.
Lesson 5: The importance of being covered
While fit and healthy, it’s easy to question the importance of your medical aid and insurance policies. A health crisis is a good reminder of the importance of being able to afford private health care and having cover in place to protect you and your family. If you find you are unable to pay your premiums, or you downgrade your plan, make sure you have sufficient funds available to pay for costs not covered by your medical aid. Your premiums should not be your primary consideration when choosing a medical aid or personal cover, as the benefits always outweigh the costs.
Lesson 6: Have professional support
At the start of 2020 most financial plans did not account for a virus and the economic impact of lockdown. But when your financial plan goes out of the window, get professional help. Building a relationship with a financial adviser is one of the best investments you can make. Having someone to help you navigate the complex and sometimes frightening world of finances can make your journey a lot less bumpy and more enjoyable. Find someone you trust and can rely on for support during challenging times.
Covid-19 caught all of us off guard, and we don’t know when something like this might happen again. To ensure you are ready for whatever life throws at you next, start preparing today by settling your debt, living below your means and saving as much as you can.