How To Navigate Tough Financial Times

by | Sep 21, 2023 | Career & Money

Between the psychological battle of having to train your brain to become accustomed to the simpler side of life (yep, no more fancy home dinners that require an ingredients list as long as your arm) – and the constant temptation to entertain yourself outside of your home (now that warmer days are here again!) – Ramaphosa’s economy has us in a chokehold. 😮‍💨

Wealth advisor and PSG Wealth R21 director Elke Brink shares a few necessary coping strategies to help us navigate the current financial state of things. “There’s a lot of pressure on the average consumer, especially if you have any debts in place with high-interest rates at the moment. Inflation is at an all-time high, specifically for South Africans. Experts always quote an inflation target band of between 3 and 6 percent but it’s much more than that, says Brink.

“If you have medical aid and are paying electricity or school fees, the inflation for you is almost in the double digits,” Brink adds that though interest rates will go down again, inflation will remain quite high in terms of the average expenses that most people have.

READ MORE: How To Save Money – And Why It Matters For Your Health

First rule of thumb during tough economic times?

“It really boils down to knowing what’s reasonable within your income so that you’re still able to plan for the future,” advises Brink. Yes, the ever-increasing interest rate hikes, petrol price and inflation have us biting our nails and worried sick about our financial futures but, this is also not a time to make fear-based financial moves that could leave you worse off in the end. 

Below are a few simple changes to implement pronto!

On The Brighter Side…

First things first, don’t stop saving

During tough economic cycles, the average person stops assuming that NOT saving or contributing to their investment portfolios is the easy way out. However, this often creates other problems down the line, warns Brink. “These cycles can take two or three years to turn again. Try finding a balance between paying off your debts and continuing to save. When you stop saving, you get used to having extra money that doesn’t really go anywhere significant,” she says. This ensures that you still gain that benefit of compound interest and time in the market because planning for the future starts now. Remember that you still need to retire someday and execute other future plans that will require money.

There’s no escaping a budget

You’re probably thinking: ‘I wish there was a magic wand that could mysteriously fix my finances. But it doesn’t get any simpler than going back to doing the basics of analysing your income versus expenses. Though budgeting may leave you feeling guilty here and there, it is inevitable.

“Most people are guilty of knowing what’s coming in and not really what’s leaving their bank accounts and where they’re spending the most. Budgeting allows you to see where your expenses aren’t balanced correctly and where you can tweak accordingly,” advises Brink. 

Pay off debt

‘With what extra money?’, you may be asking. Given the unpredictable nature of interest rate hikes, Brink recommends paying off that credit card debt as quickly as possible — that includes store card debts as well. Speak to your bank about how they can assist you in getting out of your high-interest-rate debts quicker, e.g. getting a low-interest personal loan to consolidate your debts or asking for your interest rates to be reduced. Very few people ask about these options that could allow them some breathing room.  In essence, paying off debts will improve your personal cash flow which could be redirected towards your savings.

Build an emergency fund

And if you haven’t started, now’s as good a time as any. Experts usually recommend three to six months’ worth of your salary. This comes in handy in those cases where you’re retrenched or where you are suddenly faced with last-minute expenses that aren’t part of your monthly budget, e.g. food and petrol increases etc. One way of building an emergency fund is by creating a second source of income that is separate from your nine-to-five. This could be a weekend job at a book store, a speaking engagement or tutoring, or a side hustle such as selling pre-loved clothing, books, clothes etc.

READ MORE: How To Master The Basics With Investing 101

The Nitty-Gritties Of A Side Gig

An additional source of income can make a huge difference in any household. Equally important is analysing the risks that come with starting that side hustle, says Brink. For instance, mental and physical fatigue or investing in a side hustle only to end up losing more money in the process.

Should you decide to go down this route,  make a calculated financial decision. For instance, what would it mean from a tax point of view? “Get advice on how to optimise your tax position so that you’re not earning more but also paying more tax,” says Brink. Lastly, while it may be great for more money to be coming in, is it worth your family or rest time being compromised? 

READ MORE: 5 Top Financial Planning Tips To Use This Financial Year

While this piece of advice may seem counterproductive at a time when you only care about making more money, Brink recommends that you ask yourself:

“Would I rather bring in more money or make household changes that will bring minor discomforts but guarantee that my family (or personal) life is not disrupted?”, asks Brink, adding that it’s important to always think about life holistically — especially in these times when great mental health is paramount. Should you decide to moonlight, we recommend that you consider all of the above questions and suggestions.

Let the biggest lesson of any challenging economic cycle be this: When times are good, save all the extra money at your disposal. As we’ve seen, a (looming) recession can affect every area of your life. 

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