After President Cyril Ramaphosa’s announcement of a state of national disaster due to the energy crisis, along with South Africa being greylisted and the cost-of-living crisis, it is not surprising that economists believe we have already entered a technical recession, according to Janine Horn, financial adviser at Momentum.
Horn said: “It is no secret that economic movements affect our household finances. Unfortunately, most of us were already feeling the pressure a long time ago, and a recession will only spill on to an already full plate.”
Horn said that during a recession the economy slows, businesses struggle and liquidations and staff reductions put livelihoods on the line. It is therefore important to prepare for a recession to safeguard your household finances.
Horn shares 4 tips to help people prepare for a recession.
Review and rework your budget
Tyrone Lowther, head of Budget Insurance, said: “A basic budget is one of the most underrated tools for gaining control of your finances, managing expenditure, saving and avoiding debt.”
While people are doing their budget reviews, Horn suggests that people carefully outline their expenses versus their income and try to reduce their costs.
“You may also need to get rid of non-essential items. Rework your budget to align with these changes,” she said.
Bolster your emergency fund
Having an emergency fund ensures that you have money to cover emergencies or unexpected expenses such as car tyre replacement.
Horn said it was not too late to get an emergency fund started and that people didn’t have to save an excessive amount of money upfront.
“Look at your budget and cash flow and commit to saving some money regularly, or whenever you can, to create your emergency savings fund for a rainy day,” she said.
According to Lowther, it’s recommended that people have three to six months’ worth of expenses saved up in their emergency fund.
Pay off high-interest debt
Horn said people should organise their debts and start paying off their high-interest debts such as personal loans and credit cards. This is known as the avalanche method.
According to Janine Jacobs, head of financial reporting at Glacier by Sanlam, the avalanche method is paying off the debt with the highest interest rate first
Although paying off these debts may take a while, Horn advises people to take intentional steps to do so. Paying off your high-interest debt will help you clear your financial slate.
“Make sure you have plans in place that ensure you'll be able to pay off all your debt,” Horn says.
Stay invested
According to Horn, during unpredictable times, people are more likely to switch or pull out of their investments.
“It is not advised to make decisions when you are panicking. Jumping the investment ship in pursuit of better returns will most likely lead to losing money. It is better to stay invested in gaining long-term results,” she says.
Horn said: “Although these are difficult financial times, it is not all doom and gloom. Remember there are financial advisers available that can assist you with a financial plan to help you on your journey to success.”
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