Five steps to recession-proofing your finances

Schalk Malan, CEO at BrightRock.

South Africa recently was dealt a triple blow with the announcement of our first recession since 2009, followed by ratings agency Moody’s decision to downgrade South Africa to just one notch above subinvestment grade, as well as S&P Global’s reaffirming of their rating at subinvestment grade at BB+. While there is very little ordinary South Africans can do about the impact this is going to have on interest rates and inflation, there are many ways to make your finances more resilient under these conditions. Here are some guidelines.

1. Review your expenses

You are very likely to be able to make a clear distinction between your luxuries and necessities if you take a look at your bank statements. Necessities like fuel, groceries, rates and taxes will obviously have to stay, but what about luxuries like the membership at the gym you rarely visit, pay television for channels you don’t watch and dinners at expensive eateries? Cut some of them out – your budget will thank you for it.

2. Update your short- and long-term insurance

While you’re going through your expenses, take a look at your insurance premiums. Make sure there aren’t any unnecessary items covered in your short-term insurance policy, and add additions to your household of you haven’t done so already. It’s always a good idea to contact two or three insurers to see if you can cut down your premiums – allocate some time for this in your calendar.

Don’t forget your long-term insurance. Remember – new additions to your life like a baby, home, job or spouse should also be covered here, and there are products that are designed to be flexible enough for you to add cover for this. Also take a look at how your premiums have increased over the past few years. If you’re uncertain about your cover and how or why there’s a spike in your premiums, ask an independent financial adviser to review this for you. There are new life insurance products available that are able to tailor your cover to each specific financial need, and change over time according to the need. This means your cover is priced appropriately, meaning you can get on average 40% more cover for the same premium rand, from day one by simply stripping out the waste.

3. Tackle your debt

Debt – especially short-term debt – should be kept to the minimum. Start tackling your debt by paying off accounts with high interest rates, like your credit card(s) and retail accounts. Consider closing as many high-interest accounts as possible or capping them. Alternatively, negotiate new pay-off terms with your creditors that will enable you to pay off your debt within a specified term, and ensure your payments are budgeted for in your monthly expenses. If you have a long-term debt facility like an access bond that is not too negatively affected by higher interest rates, consider consolidating your debt into that facility.

Looking at your long term debt like your home and car loans, ask yourself if you are living within your means? Downgrading on these assets has the potential to bring enormous relief to your budget and long-term financial outlook. For example – if your children have left the house, a smaller house might be more affordable and practical, and a less expensive car might also better meet your needs and benefit your budget.

4. Check your credit record

A clean credit record has the potential to be one of your strongest assets when times are tough, because any financial consultant or future employer might use it in, or against your favour. All South Africans are allowed to obtain information on their credit scores for free once a year. You can do this through a variety of online services or ask your financial adviser for assistance.

5. And then, there are grey expenses ...

Expenses like outstanding traffic fines, unabridged birth certificates, licence- and passport renewals all have the potential to make an unexpected dent in your cash flow. Make sure that everything is valid and up-to-date to prevent even more expenses, like a cancelled international trip because your passport expired or you don’t have an unabridged birth certificate for your child.