The coronavirus pandemic has not only created the greatest health crisis we have seen in South Africa during our generation, but it has equally devastated the economy and left many households unsure of their financial futures. Take some time to discuss your plan with your Financial Advisor to gain some perspective and guidance during this unsure time. Your plan may need adjusting temporarily but there are some steps you can take to assist you to restore your financial independence.
Today’s wise choice defines your tomorrow.
1. Keep calm
I’m sure this is easier said than done but it is important to remember that this is not the first crisis we have faced; nor will it be the last.
While there is no denying this is by far the worst we have faced and there is a great deal of uncertainty around how long it will take to recover, it must also be noted that it too creates investment opportunities for those wise enough to seek and find them.
It is important that you avoid panic and refrain from adjusting your investment strategy based on fear and emotions. If your investments are correctly structured for their purpose, then asset allocation will already be appropriate to your risk profile and time frame of your goal and the secret is to stay on the course. Panic selling will only set you up with securing losses and leave you out of any recovery opportunity and this is a costly error.
2. Manage your debt
It’s time to budget and check your spending habits. Track your spending and sort the needs from the wants. It is important that you do what you can to keep your credit score unscarred. Missing monthly payments can have far reaching consequences beyond the crisis. Most creditors have been willing to assist with payment plans and offered temporary
payment deferral which has assisted to stretch the budget during this time. Take advantage
of them wisely but be aware that when you are back to “normal” the debt remains.
There are several strategies to reduce debt and some recommend starting with the debt that cost you the most, applying as much disposable income to the highest interest debt while continuing to make the minimum monthly payments on all other debt to avoid penalties.
I like the snowball method.
The debt snowball method is a strategy where you pay off debt in order of smallest to largest, gaining momentum as you knock out each balance.
When the smallest debt is paid in full, you roll the money you were paying on that debt into the next smallest balance.
Step 1: List your debts from smallest to largest regardless of interest rate.
Step 2: Make minimum payments on all your debts except the smallest.
Step 3: Pay as much as possible on your smallest debt.
Step 4: Repeat until each debt is paid in full.
You quickly see results with being able to “tick” a debt off your list and it encourages more of
the same behaviour. It is time to trim the fat, review your budget and discard any unused gym memberships, cell phone plans, review your short- term insurance if reduced travel. Consider the cost of your life cover. If you are paying for a lump sum death benefit to cover family income on death you may want to consider a monthly paid death benefit that will ensure that the monthly payment to your family still covers the lost income. This may not only be a cheaper option but also ensure that lump sum benefits are not misspent, and your family assured to receive a monthly income.
Be wise with any tax refunds and use them efficiently towards debt settlement and while bonuses and salary increases are unlikely to be forthcoming for a while, avoid the old habits
of spending and pay your debt first.
3. Consider re–financing
Speak to you bank manager. There may be some debts that you are able to re-finance. Re-financing is not a decision that should be taken lightly as it can have long reaching effects.
However, if you are cash strapped you can consider refinancing your loans to lower monthly
instalments. It is important to know that in the long run you are likely to pay more but re-structuring your debt remains better than not being able to pay at all. We find ourselves in a
lower interest rate environment than just a few months ago and while this is devastating for
our elderly who rely on the interest in income, it becomes a time of easing for those in debt.
Remember this will not remain so. When you reach some sense of normal you can always review a strategy to target these loans and adjust your financial plan accordingly.
4. It’s time to find the opportunities
If you are well positioned financially it is now time to seek investment opportunities that
have not been around for a while.
“Bull markets make money, bear markets make you rich, but pigs get slaughtered" is an old Wall Street saying that warns investors against excessive greed.
A bull market is one marked with optimism and high investor confidence. During bull
market periods, the economy is generally doing well. The attitude associated with a bull
market is that stock prices will continue to rise, however, bull markets don't last forever, and
they can often cause investors to lose money by holding overvalued stocks.
A bear market is one of pessimism and low investor confidence. Bear market periods tend to coincide with looming economic recessions and are marked with falling stock prices.
Investing during a bear market can be challenging because it is hard for investors to pinpoint
which stocks will be profitable when prices are trending downward.
Pigs are investors whose goal is to make the most amount of money in the shortest amount
of time. These investors take on high degrees of risk or overlook risk in order to make a
profit. They often make rash investment decisions and buy stocks without doing their proper
due diligence. As a result, they tend to lose money and do so rapidly.
We find ourselves in a Bear market and it makes sense that while the market is cheap it
creates the perfect buying opportunity and you are well positioned to gain on the upside of
any recovery. Please bear in mind that careful selection on investments is essential so guidance from your Financial Advisor who can help guide you with your goals and risk tolerance is now more critical than ever.
5. Protect yourself for next time
We remain uncertain and who knows how far our economy is likely to fall as a result of Covid-19 and the lockdown we were called to. The implications are likely to be far reaching
but it is also safe to say this will not be the last financial crisis you find yourself in. It may be global, local or as a result of a tragic family event. Either way it is critical to make allowances in your financial plan for such events.
If you have not already put aside an emergency fund or have used the funds during this crisis, having savings prevents you from having to rely on credit cards during these times.
A suitable emergency fund is at least three to six months living expenses in a liquid investment that is easy to access during a crisis.
It is also important to review the insurance cover you have so that your family still remain protected from unforeseen life events such as sickness, severe illness, disability or even death. Review your plan and your portfolio to ensure you are still on course, re-evaluate your risk appetite and work closely with your advisor for guidance.
Written with lots of compassion, love and financial-savvy...
Yours in Financial Planning,
Your first step is to meet with an advisor. The creation of your roadmap is a complimentary process and it begins with a review of where you are, your current financial circumstances, anticipated changes, future goals, and ends with your customized plan. Whatsapp Sharon Alberts today to book your assessment directly from her facebook page or message her directly on her #ProTechProfile to get in touch for a free no-strings attached consultation! Also checkout our discussion forum on Financial Planning for more info, discussion and questions on this topic!