The economic impact of COVID-19 is being felt increasingly by individuals and businesses across the country. The simple fact that the Unemployment Insurance Fund (UIF) has been swamped with applications and already paid out well over R4 billion in UIF claims is clear evidence of the strain being felt by many households.
Against this backdrop, it is highly likely that many people are thinking of turning to whatever savings and investments they have built up to help them through this crisis.
It’s very important that we don’t allow the short-term stress brought on by COVID-19 cloud our judgement and lead us to make money mistakes that could still be impacting us negatively long after the virus is gone.
The combination of uncertainty and a sense of a loss of control brought about by COVID-19 has most people feeling highly stressed right now, and the unfortunate reality is that when our brains are stressed, we react by focusing entirely on solving the problem that’s causing our immediate discomfort, often without considering the possible long-term consequences.
South Africans need to take a moment to think about the possible long-term repercussions of the money decisions they make now.
The reality is that the impact of this virus is likely to be felt by everyone for many months to come. While that may seem scary, it’s also a very good reason to keep your focus on the longer term, rather than letting the stress of short-term, or short-lived challenges force you into poor financial decisions like draining your savings or investment accounts so that you have nothing for later.
But while the advice is sound, it’s often not easy for people to override the fear and stress that urge them to act rashly with regard to their savings or investments.
I suggest turning to the simple, but highly effective, tool of a household or personal budget to achieve this level-headed approach.
I suggest taking the following approaches as far as possible:
Half on essentials
Don’t stockpile your doomsday bunker quite yet. Try to limit around 50% of all available income for essentials like rent, groceries, medical bills and other monthly costs.
If you’re working from home, the savings on transport can bring this amount down and can be allocated elsewhere.
A third on luxuries
You’re still human and need some relief during stressful times. If you have the funds available, allocate up to 30% of your income towards discretionary spending, like hobbies, such as hiking, or visiting game parks and private game farms since these activities are allowed and open under level 3 restrictions.
Keep up the savings habit
If possible, it’s a very good idea to keep channelling at least some of your income into long-term savings, rather than cashing in your investments.
The long-term budgeting approach is not only useful for those who have experienced declining income. It’s also valuable advice for everyone, particularly anyone who is considering withdrawing their savings or investments because of the recent market losses.
We encourage consumers to not withdraw from their savings and investment accounts if they can live without doing so. Instead, to ensure that they stay disciplined with regard to their savings, they should keep their savings goals in mind always.
Irrespective of whether you’re worried about your income, or the markets, the smart approach is to leverage an effective budget to reduce your expenses, and shelter your savings in an account that provides growth and stability during times of market volatility.
That way, you can ride out the storm, and emerge from the COVID-19 crisis with your finances still in a healthy state.