COVID-19 has had serious economic and financial effects, which could continue for some time. While you need to be as vigilant and careful as you can on the health front, you will need to be just as careful when it comes to your money. We took a look at the effects of COVID-19 on the economy, what could happen to your budget and finances, and how you can prepare for what’s ahead.
South Africa’s economy was struggling before COVID-19 hitWhen the COVID-19 crisis struck, our economy was already experiencing high unemployment and ongoing loadshedding. So, things were already tough in the broader economy and in our personal budgets, even before the lockdown and the downgrade to junk status.
COVID-19 has made things worse on the economic frontTo protect lives, strict measures were taken, specifically the lockdown, during which time only essential workers worked and only essential items were on sale. Yes, there are businesses that can run online and many workers that can work remotely from home. But for many businesses and individuals - like hairdressers and others that need personal interaction - lockdown meant lost income and revenue.
When lockdown eases, some industries will be able to resume work and get back to normal. Others will be affected for a longer period of time. Tourism is a good example. People may be reluctant to travel for some time. They will need to be confident that they will be able to travel safely and without health risks and will be able to get home.
Although necessary, the lockdown has made finances very difficult to manage for many. Some businesses may never reopen or recover. Initial estimates from the South African Reserve Bank are that 370 000 jobs could be lost, other economists say as many as 1 million jobs could be affected. A study at the beginning of April by TransUnion showed that over 30% of people surveyed had been financially affected, and most were expecting a budget shortfall of R7 000 in the near future. Paying bills such as credit cards in the next six weeks may not be possible for these consumers.
Bottom line: COVID-19 has meant tough times for the economy, and this is going to affect your budget for some time.
What to do?Now is the time to prioritise what is important, reduce expenses and debt and save so that you can meet the challenges of an uncertain future. You might also need to look for ways to protect and diversify your income. For many of us, this is one of the most challenging periods we have been through. Challenges can lead to growth if we are prepared and flexible, and willing to learn new ways through the tough times.
Identify and maintain good financial habits
Good financial habits include saving as much as you can, not taking on ‘bad’ debt, and sticking to a budget.
Insurance is another good habit; and this couldn’t be more important right now. When you have insurance you and your family are protected against financial distress. Life cover, disability and dread disease insurance as well as income protection and retrenchment cover give you financial protection against loss of income. Funeral policies allow for a dignified funeral that won’t deplete your family’s savings or put them into debt. Credit life insurance may assist with loan repayments if you are retrenched or lose your income. Find out how these can work for you during this time and when and where they can be accessed should you need to use them.
Relook your budget
There are two sides to your budget – your expenses, which you can look at reducing, and your income which you can look at diversifying and protecting.
Expenses: Look at what you’re spending money on, decide what matters most and prioritise the most important. Be precise and detailed as you consider each expense and make sure you are not wasting money anywhere.
Split your expenses into essential and non-essential. Now is a good time to do this, because lockdown has made us think quite seriously about exactly what is essential. We all learnt that we can live without some things we thought were essential, or perhaps find a cheaper or free alternative. So, for example, fitness might be essential, but maybe your gym membership isn’t, because you’ve found ways to stay fit at home, at no cost.
For most of us, essentials would be things like rent or bond repayments and medical aid, which are also big expenses.
There are other expenses that are really important, but that you can perhaps put on hold. For instance, you might stop putting money into your retirement savings, just for a few months. These can all add up and free up some much-needed cash for the basics.
On the non-essential side are things we can cut down on or even do without for a while, like luxury food and personal care items, entertainment and clothing.
If things are really tough, you may need to make big budget decisions, such as changing to a lower fee or no fee school, downgrading to a cheaper medical aid benefit option, moving to a smaller home or apartment or sharing a home with family members.
Income: Look at your past and current sources of income. Where and how did you earn money and how has it changed over the past few years and past few months? Is it enough, or do you need to find new or supplementary sources of income?
Some financial reliefThere has been some financial help to deal with the financial fall out of COVID-19. We have had two interest rate cuts so home loan repayment and other debt is much cheaper.
It’s likely that most suppliers won’t be putting prices up this year – there just isn’t enough demand from consumers. Some, such as petrol and certain food items, may even go down. This is good for consumers, for instance, if food and transport is cheaper.
Furthermore, banks are offering financial relief for consumers that are in good stead with their repayments – however, it is important to understand what their offers are and to remember that this relief may still accumulate interest
Talk to peopleIf you find yourself in difficulty, speak to your bank and other financial service providers such as your insurer and anyone you have a loan or store card with. Also find out what programmes are being offered by government, NGOs and other organisations, to assist businesses and workers. Here are some programmes offering assistance:
Your business or industry association should also have details of other relief schemes for certain sectors such as tourism.
There is also UIF available for those people who have lost their income or parts thereof, where you can apply for a UIF claim.
There is a lot we don’t know, but we aren’t powerlessCOVID-19 is a new virus, so we don’t know how to treat it, and there is no vaccine. We also don’t know how long the economic effects will last, how bad they will be and how economies will recover and operate after COVID-19.
Here’s what we do know – what matters to us, how we want our families to grow and what we can control. How you spend your budget is within your control. Sometimes, you need to adjust it midway through the year or in a crisis, such as COVID-19. We live in a world of change and one of the ways we can deal with that and move forward is to adapt to the change, be flexible and control what we can. We might even find that we learn and grow through these tough times.