Keep yourself on front foot
SKILL: LISTEN TO PODCASTS, GET A COACH
The best defence against a loss of income is no debt and an emergency fund.
South Africa’s people face unique financial challenges daily, including high unemployment, extreme poverty and anaemic economic growth. One challenge we can all overcome is taking the first step to financial wellbeing by seeking to financially educate ourselves.
Financial illiteracy is expensive
Due to low levels of financial literacy and the complexity of financial products, South Africans need to avoid:
Making poor financial decisions which result in high fees and service costs;
Investing in inappropriate financial products; and
Losing out on benefits, including tax deductions on retirement fund contributions, or reduced interest payments on outstanding loans, by paying more than the minimum monthly required amount.
Make use of free online services, listen to podcasts about personal finances or get a financial coach to show you the ropes.
Income uncertainty
With the high levels of unemployment and increasing numbers of retrenchments in the past few years, South Africans are forced to dip into savings, increase their debt, cancel medical aid membership and life cover to cut costs when they lose their income.
Using long-term savings, increasing debt and cancelling risk policies is putting people at physical and financial risk.
When things improve and you start earning an income again, you start on the back foot with more debt, no savings and higher risk premiums, making it harder to manage finances and achieve investment goals.
The best defence is no debt and a safety net in the form of an emergency fund.
Low growth leading to high risk
The lack of growth in the economy over the past few years means that low single-digit returns have caused people to lose faith in the financial industry.
Many people approaching retirement have had to downsize their plans, resulting in an increase in the risk investors are willing to take chasing higher returns.
Switching to risky assets and chasing higher returns can result in more volatility, uncertainty and the risk of capital loss.
This can cause financial plans to fail and reduces the chances of meeting investment goals.
By remaining committed to your personal investment strategy, you can avoid destroying the value of your investments during unfavourable market conditions.
The cost of family
Many South Africans assume responsibility for family members facing financial difficulties and many problems are as a result of individual income earners supporting multiple family members.
These income earners are undermining their own finances, putting them at risk of becoming financially dependent on others should they lose their income.
Ensure your personal finances are taken care of before you help others. You can still assist them by motivating, inspiring and helping them to identify opportunities to help themselves.
Prinsloo is a certified financial planner at Alexander Forbes Financial Planning Consultants