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How to reach Financial Freedom in difficult Times- Old Mutual

South Africa’s economy was further pushed into a recession by the coronavirus pandemic. Some economists expect that the unemployment rate will increase significantly and that a lot of small businesses may not make it through the epidemic. There is hope as philanthropists and companies have come together to support South Africans via various initiatives. 

“South Africans are nimble, and we will get out of this financial crisis stronger than ever before by doing the best we can do within our means at this difficult time. Old Mutual draws from the experience we have gained over the past 170 years to develop reliable personal strategies that will enable you to navigate through this financial storm,” says Koos Nel, strategic retail manager at Old Mutual.

South Africans need to be aware of how the recent economic events will affect them to address financial issues concerning them.

The country’s recent sovereign credit rating downgrade to junk status by Moody’s rating agency will affect our pockets in addition to the coronavirus pandemic.

In a nutshell, South Africa will no longer be listed on the FTSE World Government Bond Index. What this means is that foreign investors may not hold junk bonds and will have to sell South African bonds leading to an exodus of foreign investment. As a result, the government has to pay more in debt-servicing cost, which means that less will be spent on infrastructure development and social initiatives. The government would have to raise taxes to plug the funding gap. The downgrade has caused the Rand to depreciate and increasing import costs, including oil over the longer term. It will have a knock-on effect on everything else. When inflation rises, then the government will be forced to raise the repo rate attached to the prime lending rate, which will increase the cost of borrowing (mortgages, vehicle loans, credit cards and personal loans). The higher risk of consumers defaulting on premiums will make it harder for South Africans to qualify for new loans. When they do secure credit, it will be at a higher cost. So loans will be less of an option when finances are stretched.

However, there is short-term relief as petrol prices dropped due to the Saudi-Arabia/ Russian price wars and a recent interest rate cut.

Financial wellness is now more than ever the most important gift that you can give your family in these difficult times.

Those nearing retirement are already facing challenges to service debt, pay school or university fees, looking after parents, while still planning for the future.

It seems that South Africans are struggling to make ends meet; some are over-indebted and may think that it is impossible to save.

Still, saving may be as easy as giving up on pleasure spending to save for a goal such as an emergency fund to plug the holes. Paying off debt is also a form of saving.

Often people reach retirement age before realising that there isn't enough to carry them through for another 20 to 30 years. This means they must continue to work for several years or lower their standard of living, or both. Don’t let the financial crisis leave you unprepared for your future.

Putting off saving for retirement until later in life – even in higher amounts – rarely outperforms earlier savings, due to the impact of compounding interest. Compounding interest is where you earn interest on the interest you already received. This has a positive snowball-effect on your savings. 

Nel identifies the debt trap as one of the most daunting hurdles that need to be cleared before a positive future can be contemplated.

 He recommends paying off your most expensive debt first. Once you have cleared your debts and are operating on a cash basis, you can start thinking about investing your money for other goals.

 “If you want to reach a place of financial success, you need to know where you are every step of the way by drawing up a budget,” says Nel.

 To help you keep track of your expenses, Old Mutual has developed a budget template - : you can download it here.

 10 Tips to free up money and save for retirement:

scale down from expensive designer brands to more affordable brands, whether clothing, perfume, make-up or beauty products
scale down on DSTV subscription that costs over R900 a month to an online streaming version
cut down on takeaways and eating out - cook at home instead
entertain at home – host a bring-and-braai where guests bring their meat and drink, and you provide salads and bread
instead of meeting friends for lunch or brunch, meet for coffee
replace children’s cellphone contracts with pay-as-you-go, or set a limit on the cellphone bill
cut down on weekends away and holidays
when you get your salary increase, increase your retirement premiums with the same percentage
when you get your bonus, inject a lump sum into your retirement
with the new tax year looming, take full advantage of the tax benefits for saving.
 

4 Financial checklist pointers to work towards before retiring:

 Face your financial realities – do you have enough savings to make up 75% of your final salary for the next 30 years?
Balance your priorities – many of us live for today at the expense of tomorrow.  Are you debt-free? You cannot afford to pay off the debt in your retirement years. Tackle your debt – pay off your debts with the highest interest first and then tackle the other debts. You will systematically bring your debts down.
Draw up a budget to get a snapshot of where you spend your money.  You can then make informed decisions about what behaviour to change so that you can use your money more productively and spend within your means.
Draw up a financial plan – that should include an emergency fund, protection from financial losses in or to your home and vehicle through short term insurance, protection from high medical expenses in retirement via the medical cover. Do you have gap cover to cover medical costs not covered by your medical aid? Do you have a valid will and funeral cover? Do you have life cover to leave a benefit for your loved ones? Have you considered living in a retirement home and the cost of it? Consult a qualified professional adviser to help you draw up a comprehensive financial plan. 
 Consumers must be empowered to allocate their disposable income wisely, whether that’s to reduce short-term debt or to commit to disciplined contractual savings to achieve long term goals. It is best to speak to a financial adviser who can help you become financially independent. Financial independence is a choice, and it can be achieved by prioritising your finances.

For solutions relevant to your needs, contact an Old Mutual adviser or click here to find an adviser.

 

 

 


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