2020 proved a difficult year in several ways. Due to the COVID-19 pandemic and national lockdowns around the world, many industries were disrupted and many livelihoods have been impacted.
In South Africa, many people have been forced to adjust their financial plans to account for our new reality. While many things have changed in a short period of time, there is much to do to apply the lessons we have learned over the past year to our lives going forward.
Maintain a good relationship with your creditors
If you face a sudden reduction of income or are unfortunately retrenched, it is important to remember that while the road ahead may be tough, brighter days are still around the corner. To manage difficult financial periods, it’s important to keep a good relationship with your creditors.
Repaying your debts on your agreed promise or instalment date can keep your accounts in good standing, can improve your credit score, and can assist your creditors in developing a repayment plan or holiday that is both affordable, and works for you.
Communicating to your creditors when you’re unable to make your planned repayments is vital to ensure that you do not end up in financial jeopardy.
Pay yourself first: Use extra income to settle your debts with the highest interest rate
If you find that you’ve managed to earn more than usual over a certain period or have a sudden windfall, the best way to reward yourself is to pay yourself first – this means by settling over and above your required repayment on your highest interest-bearing account. By doing so, you can reduce your payments and interest payable in the future – leaving more money for the valuable things in your life once your debt is fully repaid.
Live within your means and budget
Living beyond your means can easily land you in financial jeopardy, where you might find yourself buying goods or services you can’t truly afford. While luxuries can make life more comfortable, the debt you can accrue relying on unnecessary purchases can impact your budget – especially when you need to purchase or use essential services or items.
By considering your needs, and not your wants, you can empower yourself to reach your long-term goals by budgeting and planning effectively.
Prepare for sudden changes, such as with lockdown levels
No matter where you are in the world, swift changes in lockdown regulations or guidelines to address the COVID-19 pandemic can impact your ability to earn, save, or repay your debts. Keeping abreast of changing rules can help you plan forward and reserve funds for instances where you may not be able to earn a full income.
Review and adjust your insurance coverage
Lockdown regulations have meant that many people have needed to adjust their daily habits and behaviours – and were insurance policies would have previously protected you from risk, you might find that you either require more, or less, of a particular coverage.
Review your medical aid and home insurance
If you have a COVID-19 co-morbidity, it can be worthwhile to increase your contributions to your medical aid in the event you require medical treatment. Similarly, if you find yourself either working from home or spending more time at home, you may wish to adjust your coverage to fit your needs.
If you aren’t driving, check whether you can pause parts of your vehicle coverage
If you aren’t able to drive as much as you previously might have, you may also wish to lower your contributions or pause your coverage on your vehicles should your insurer allow. By doing so, you can adjust your cover to what you truly need, and can ultimately pay less each month.
Grow three savings accounts
When it comes to managing financial curveballs, there are three major savings accounts you should commit to growing – having a mixture of short, medium, and long-term accounts can help you adjust your finances in the event your plans need, or have to change.
Having an emergency fund on-hand can help you afford immediate and unforeseen expenses that might otherwise deeply impact your pocket. While your savings commitment can be adjusted, a good idea is to save towards have R20,000 available – which can usually bridge the ‘coverage gap’ offered by most medical aids, as well as minor to moderate home or vehicle repairs.
For general use
Your general savings account is vital to afford your longer-term aspirations, such as affording a holiday, buying home appliances, utilities, or other aspirations. Ideally, saving three times one month of your salary is a useful way to be able to budget for, and eventually purchase more expensive items.
Saving for retirement is vital, and while this may be some time away depending on your age or ability to work, keeping money aside to enjoy life post-work is vital. A useful guideline to follow is to commit to saving at least enough money to pay yourself 80% of your final working salary each year until your passing.
If possible, seek the help of a financial advisor
If 2020 proved a difficult year and derailed your long-term plans, do not worry – people all around the world have similarly found the year past a troubling time with many sacrifices to be made.
If you would like to reconvene and restart your financial plan, consulting a licensed financial advisor is a positive step to make. Our helpful guide can assist you in finding an advisor that meets your needs.
Review financial assistance measures during the pandemic
While support measures may change or come to an end in the near future, the South African government has made support measures available to the public who are facing financial difficulty.
We’ve prepared an extensive article which can help you find the support you need during this time, and into 2021.