Nine ways to weather the storm during turbulent financial times
• Being proactive and mapping the way ahead will help calm the waves of uncertainty
The Covid-19 pandemic has turned the world upside down and we are dealing with unprecedented levels of uncertainty. We are yet to experience the full economic effect of lockdown, and even after lockdown it will be some time before full economic activity is restored.
Being proactive and mapping the path ahead may well see you through the next wave of uncertainty. Here are some steps individuals can take now to brace for the period ahead:
Know your household expenses. Budgeting is important and not many people have a grip on their expenses. Understanding what the household running costs are will help you tighten your belt and plan ahead.
Communicate, communicate, communicate. Speak to your bank, landlord and creditors. They are facing similar economic challenges and most will be open to discussions about alternative arrangements.
Check your debit orders. Check your credit card and debit card statements. As you go through your items, you are bound to pick up a few things you can put on hold for now to free up cash flow.
Review your investment debit orders. It may be sensible to reallocate debit orders that are allocated to retirement funds to discretionary savings. In most cases, investment debit orders are easy to place on hold. Older-style products may have penalties associated with cancelling debit orders, in which case you should ask your financial adviser for options.
Review your insurance debit orders. Insurers are offering relief measures to see clients through the Covid-19 pandemic. The options that are being offered in most cases are:
Premium holidays. You may be able to pause or reduce your cover for a period and save the monthly premiums. After the break, you are then able to reinstate your cover without any medical underwriting. This does, however, mean you are not insured during the break.
Fund cover through benefits. If you have cover with an insurer that has some sort of payback or investment component linked to the cover, then some of these insurers are allowing clients to pay their premiums from these benefits.
Determine how you can access capital you may need in the near future. Once you know how much you need to stay afloat for the next six months, assess where you can access capital to fund your household. If you do not have a savings account ready to fund this, your next bet is to check your investments. You may have any of the following:
Retirement annuity. Unless you are 55 or disabled you cannot access your retirement annuity fund.
Employer retirement fund. If you have resigned, been retrenched, dismissed or are retiring from your employer, you can access your retirement fund. Decisions about this require further consultation to have all the information to make an informed decision.
Preservation fund. If you previously left an employer and preserved your retirement fund, then you are likely to have a preservation fund. You are allowed to access this investment once before retirement age and you can either draw out a portion or cash in the investment completely. Check the SA Revenue Service (Sars) retirement fund withdrawal tax tables for the tax consequences.
Unit trusts or tax-free savings accounts. These investments are generally flexible and can be accessed when needed. It takes about seven business days to redeem the capital. Be aware that redeeming from a unit trust may attract capital gains tax.
Review your will. Dying without a valid will could have severe consequences for your family, not to mention the added burden you are placing on them to administer your intestate estate.
Check your beneficiaries. Now is a good time to check your beneficiaries to make sure you have nominated the correct individuals. This might also save you tax or executor fees, which means more of your estate is left to your heirs.
Realign and understand your investment strategy. If you have earmarked a piece of capital in your investment portfolio to use as your emergency fund, make sure the capital is allocated to the correct asset class. The recent market decline has recovered somewhat as we stand now, so allocating this portion to a conservative strategy to protect it from any further volatility may be a good idea.
As for your long-term investments, managing your emotions and applying sound investment principles may well be your best tool to navigate the current environment.
Use these nine ways to plan for the months ahead, because as Sir Winston Churchill once said: “Let our advance worrying become advance thinking and planning.”
UNDERSTANDING WHAT THE HOUSEHOLD RUNNING COSTS ARE WILL HELP YOU TIGHTEN YOUR BELT
DYING WITHOUT A VALID WILL COULD HAVE SEVERE CONSEQUENCES FOR YOUR FAMILY