GETTING THROUGH A DOWNTURN: STRATEGIES FOR MANAGING YOUR FINANCES IN SOUTH AFRICA
For many South Africans, the downturn can mean financial instability, economic uncertainty and tough decisions about whether to save or spend. Making the right decisions about your finances can make all the difference in getting through a downturn. According to the Financial Planning Institute of Southern Africa (FPI), these strategies can help you stay afloat and make it easier to weather the storm of a recession:
Understand Your Financial Situation:
The first step is to get an understanding of your overall financial situation. Aim to make a detailed list of all your income and expenses. This information can help you identify areas where you can cut back, such as entertainment, dining out or travel. You should also calculate your debt-to-income ratio and request a free credit report to help you understand your credit score and any potential issues that may need addressing.
Cut Your Costs:
Cutting costs is the key to surviving an economic downturn. It may mean sacrificing luxuries such as dining out, going to the movies or shopping for items that are not necessities. Reducing electricity and water consumption is also an important step. Consider getting a prepaid electricity meter to ensure you only pay for what you use, and make sure to track appliance usage so that you can be conscious of your overall consumption. Research other similar lifestyle changes you can make that can save you money.
Create a Budget:
Having a well-planned budget is crucial for getting through a downturn. You can use a budget calculator like the one from the South African Revenue Service to help you estimate and track your monthly expenses, income and debt payments. A budget should be regularly revised and updated to take into account any changes in income or expenses.
Pay Off Debt:
Carrying debt during a recession can be risky and lead to financial difficulties. It is important to prioritize paying off any high-interest debt first. Make sure to stay current on all debt payments, and focus on only paying what you can afford. Consolidating debt into one more manageable loan, as well as negotiating more favourable repayment terms with your debt merchant can help make reducing debt easier.
Build an Emergency Fund:
An emergency fund can be one of the most valuable tools against financial crises. It can provide financial security if you lose your job, face a medical emergency or have to repair or replace a major household appliance. It can also help you avoid taking on further debt. Aim to save at least three month’s wages in your emergency fund.
Stay informed:
Receiving timely updates on economic trends, policy changes and other information relevant to your finances can help you plan and make sure you’re as prepared as possible for any unexpected losses or changes. You can get regular economic updates by subscribing to the South African Reserve Bank’s monthly economic bulletin, or by using the Business News South Africa app.
Be Strategic with Investments:
Investments during an economic downturn require extra care. Don’t be afraid to take calculated risks when it comes to investments. However, do your research and consult experienced financial advisors first. Consider investments with low risk, such as government bonds, and look out for opportunities to benefit from falling prices by investing in well-established blue-chip stocks.
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