With unemployment at record levels and many businesses cutting back, most South Africans have to make tough financial decisions. What practical steps can you take to survive this difficult financial environment? We’ve got down to business, with a step-by-step guide for you to follow.
First things first. Take control of your finances We know that the economy is in poor shape. We all need to assess our own personal risk factors and take steps to get on top of our financial lives and prepare for any difficulties ahead.
Work these steps even if you have a fairly secure income, are managing your debt and expenses, and are not anticipating any drastic changes. It always helps to be prepared for the possibility that things might get tougher, and if not, you may be able to save a bit more than you thought!
Get a full picture of your finances
Take a deep breath, face the facts and get a full picture of your finances. This will show your financial position - how much money you have and how much you owe. When you know your financial position, you can start planning. Don’t put this off – do it as soon as possible.
Income: List the household’s sources of income - salary, rental, interest and any other sources - and evaluate if they are stable or likely to change in the months ahead. Take into account any possible changes such as retrenchment or salary cuts.
Expenses: List all the expenses your household currently incurs such as rent, food, transport, education, insurance, savings and medical aid expenses, as well as monthly repayments on any loans, credit card and store cards.
Assets: List your family’s assets such as your home, car, savings and investment accounts (including pension savings), any personal possessions such as jewellery and appliances and value them at market price. This is the price you would get if you sold them today. From this you may be able to identify assets you can sell to raise funds if necessary.
Liabilities: List your liabilities (how much you owe in total) including home loans, car finance agreements, credit card debt, any personal loans and any unpaid accounts from the last few months.
Work out a budget
Once you have a good picture of where you are, put all the expenses and income together into a monthly budget so you can see if your income is enough to pay for all your expenses, or if you need to adjust your budget. When you do your budget, split your expenses into essential, such as housing, food and transport, and non-essential, such as entertainment. If you can, add savings as an expense item. But if your finances are really tight you may need to forgo savings until your income increases, or your expenses decrease.
If you have any spare cash, consider how you can use it to protect yourself against possible future risks in this uncertain environment. An income protection policy will pay all or a part of your salary in certain circumstances for a set time, for example if you become ill or are retrenched. If you possibly can, you should also put money into an emergency fund every month. This can be a crucial buffer if you do have a loss of income in the future, or if you have a big expense.
When things get really tough: dealing with retrenchment or salary cuts If the worst happens, and you lose your job or have to take a salary cut, you might find that your expenses are more than your income. More drastic action is required. In this case, you have a few options.
Reduce your expenses
Cut back on anything that you don’t need or don’t use, as well as luxuries and nice-to-haves, like entertainment. If there is a big gap between your income and your expenses, you may need to cut down on items such as housing, transport, insurance, savings and education.
Downsize your home. This can save lots of money. It may seem a drastic step, but it may also mean you are able to balance your budget and live within your means. Just make sure you do your research and your sums carefully first.
Share expenses: It may not be easy at first but sharing expenses such as transport can save money. For example, you and another family carpool. This may add a little time to journeys but it will cut transport costs, which can be very high. Buying in bulk with a neighbour is another option to consider, as is sharing a home.
Debt review: If you are paying a lot towards debt repayments each month, investigate debt review, which allows you to pay off your debts over a longer term, so you pay less each month.
Negotiate loan terms: If you have one or two large debts you struggle to pay each month such as a home loan, ask your creditor if they can review the terms so you pay less every month. This may mean you pay over a longer time, which will mean you pay more overall. But it will allow you to pay what you owe each month.
Sell assets: Assets you can sell include a second car, appliances and sports equipment, devices and phones you no longer need as well as jewellery and more. Look around your home and get rid of items you don’t need, use or want and turn these into cash.
This won’t add income to your pocket each month, but it can be a once-off boost to your finances. If you use the money to pay some debt, this will reduce your monthly expenses.
If you sell online just be careful of scams and don’t part with your goods until you have cash in hand, or your bank has confirmed the funds are in your account.
Dip into your savings
When things are really tough you may have no choice but to use your savings for your daily expenses. That’s okay, because food and a roof over your head cannot wait. And it’s the reason many of us save. Savings you can dip into include:
- Emergency savings
- Fixed deposits and savings accounts
- Stokvel savings
- Personal investments
In addition to reworking your budget and reducing your expenses, there are some short-term measures you can consider.
Pension fund pay-out: If you leave your employment, you can access your pension fund. This can tide you over a few months or years, depending on how long you have saved in a pension fund and how it has been invested. In an ideal world pension fund savings are kept for when you are older and unable to work. We live in the real world and if this is your only source of money to live on, use it.
Talk to your creditors: They may have relief packages that can reduce payments or payment holidays to help you through.
Talk to family and friends: No one likes being retrenched but we need to see it as a part of life. There is nothing shameful about being retrenched and we should speak more openly about how difficult it is, and how we feel about not being able to provide for our families. Families can also sometimes offer assistance and help you network to find new opportunities.
Institutional assistance: There are many non-governmental organisations and charities who will assist with food and other essential items if things get really tough.
It’s okay to feel scared This is a difficult and unpredictable financial time for most South Africans. It’s normal to feel scared and unsure in such an environment. Most of us feel this way in 2020. If you find yourself overwhelmed with anxiety or depression, find someone you can talk to – either a family member, trusted friend or colleague, or professional such as your GP or SADAG. When you are overwhelmed it is difficult to make good decisions, so you need to find a way to acknowledge this tough emotional state and tackle it so you can make some financial plans, as outlined above.
Be frugal, be prepared There are a lot of plans to revive the economy and get South Africa growing again. We don’t know when this will happen. Right now, the rest of 2020 and 2021 look like they will be years when money is hard to come by. Even if you earn a regular income, review your spending to make sure you are living within your means and look for ways to cut expenses and increase your income.