By Tarryn McDairmant, 3 April 2020
We have survived week 1 of the lockdown! Whether you have been running after your kids and trying to fit work in amongst the chaos, or if you’ve been working harder than ever before with no distractions…it has definitely taken a few days to get used to ‘life in lockdown’.
Amongst all the news, updates, messages and pictures I wanted to send out something practical to ensure we use our time, and money, wisely. If you are lucky enough to be healthy and have some time on your hands, that you would not usually have, then please take 5 minutes to read this and think about your finances.
Unfortunately, when the Coronavirus crisis hit, South Africa’s economy was already in crisis. It is a sad reality that many people may lose their jobs or will have to close their businesses. In this uncertain time, you need to be careful not to spend your retirement funds, unless you absolutely have no other choice.
Accessing your preservation funds or drawing your pension/provident funds upon leaving your employer, will most likely lead to tax implications. It will then take you several years to build up what you had already saved. Remember Albert Einstein’s saying, “Compound interest is the eighth wonder of the world.” The earlier you save, and the longer that money has to earn compound interest, the more you will have at the end.
In some cases, your employer may decide to reduce or stop your retirement fund contributions. If your income is decreased, then this makes sense and will help your company to stay afloat during this period of no or low income. If you have retirement funds outside of your employer’s fund, and your salary gets reduced, then you need to consider whether you can continue with these other policies. First prize would be to carry on contributing if you can. If you can’t, remember to ask about penalties before you just stop any of your debit orders.
If you still have work and are getting a full salary, then make sure you continue contributing to your retirement and savings. There is a great opportunity now to take advantage of lower market prices and ‘buy in’ at low levels.
Let’s not talk about our physical weight…some of us are devouring bars of chocolate and some of us are spending hours in our garage gyms.
I’m talking more about giving ‘weight’ to certain things you have not had time for before. The obvious ones are spending extra time with your family, doing some spring cleaning or gardening, or catching up on your admin. This is also a good time to do that budget you have always been trying to do or update the beneficiaries on your pension fund/provident fund/retirement annuity or living annuity.
Make sure all your important documents like your Will, emergency numbers, list of bank account numbers, investment broker contact details and letter of wishes are in one safe place. Update these documents if needs be too.
If you do go through some financial upheaval at this time then you need to contact your bank to see if they will offer you a payment break on your home loan or car finance…and perhaps look at refinancing these if you can get a lower rate due to the interest rates having come down.
Now is the time to prioritise. If you are getting a lower salary, you may have to stop your savings/wealth building for a couple of months to cover the monthly expenses. Keep in mind that even though you have regular debit orders, you may be saving on things like petrol, going out for meals, buying new clothes and holidays. Try not to stop saving unless you really have to.
You can also view this current situation as an opportunity to create wealth. Some asset classes have been decimated by the recent drops in the market, but their fundamentals haven’t changed and will benefit greatly when the Coronavirus impact settles down. Buying low and selling high is a simple principal but now is the time to do it.
As mentioned earlier, this is also a critical time to preserve your wealth. Market crashes have happened before – market cycles consist of bear (downward) markets and bull (upward) markets. It’s the long-term average of all the volatility that results in growth on your investments.
The world has changed in a matter of weeks and it will be different forever because of COVID-19. As much as we must sympathise with other countries, and help where we can, we must also use this time to see how we can change ourselves, our businesses, our families and our country for a new and better future, and for good. If not now, then when?
Whether you invest locally or offshore, or both, keep your long-term goals in focus and ask us if you need advice on your finances. Use this time to put things into perspective, restructure your finances where possible, cut expenses where needed and prepare for ‘life after lockdown’. We may not ever get an opportunity like this to take time for what matters.
Stay safe and stay healthy!