Downsizing can be your downfall

Arnold van der Linde, president of the Financial Intermediaries Association of Southern Africa (FIA)

When the world economy is under pressure, people invariably become insecure and are prone to make panic-driven decisions to downsize; a choice which could have devastating effects in the longer term.

“Consumers can save money without lowering their quality of life or increasing their financial risks,” says Arnold van der Linde, president of the Financial Intermediaries Association of Southern Africa (FIA). Should you, for example, need a new car, it may actually be best to purchase your vehicle during economic slumps when the motor industry is facing severe pressure. If one has secure employment plus the necessary finances and can avoid a price increase, then this could indeed be the perfect time to buy that new car.

“The same principle applies to making insurance decisions that are not thoroughly thought through. Indiscriminately reducing your insurance when the economy is tight is probably the worst decision one can make. If you cannot currently afford your monthly insurance premiums, you should ask yourself whether you will ever be in a financial position to replace your car in the event that it is written off or stolen. Besides hurting you financially, such an erroneous decision can ruin you.”

There are a number of ways that you may save on your insurance premiums; one of which is to carry certain personal risks by voluntarily increasing your excess amount. Another sure savings method is to safely lock away your high-value specified items such as jewellery, at the bank until your finances have improved.

Van der Linde says it is crucial to consult regularly with your intermediary to find innovative, tailor-made downsizing solutions. This will ensure that you are in the best position to manage your finances in troubled times.