South African consumers are under massive financial pressure right now – and things are going to get worse before they get better, with the World Bank’s latest Global Economic Prospects report warning of a global recession as fuel prices, inflation and the cost of living all increase sharply.
What this means is that many consumers may be tempted to dip into their retirement savings to help make ends meet. But that’s one of the worst things you could do to your finances, warns Nico Burger, Head of Financial Planning at employee benefits advisory firm NMG Benefits.
“We’re going through tough times, which may become tougher still. Eating into your savings today puts pressure on your savings for your future. Now is the time to put your spending habits under the microscope and learn to spend even more wisely than before,” says Burger.
Start by tracking your spending
Take your bank statement at the end of each month and go through each line item. Calculate how much you spend on your needs and your wants. After a few months of carefully unpacking your spending habits, you will be able to see where your ‘leaks’ are – and once you’ve found those, you can work to close them up. “Spending more wisely could mean something as simple as ordering less take-aways and eating at home instead,” says Burger.
Set your own ‘cool off’ periods – and stick to them
When you want to buy something that’s costly, give yourself a period to think about it before going ahead with the purchase. This may sound simple, but it’s effective with compulsive buyers. Buying compulsively doesn’t give you enough time to truly evaluate if you need the item or if you want it. “Compulsive buying also often leads to remorse because you haven’t done proper research. You may find a better quality product somewhere else at a discounted price,” says Burger.
Don’t reduce the amount you put away each month
The future is uncertain. You shouldn’t only be avoiding eating into your savings, but actually try to save more, is possible. “We’re in a period where saving and preserving our money is critical to our financial futures,” says Burger.
Preserve your retirement savings when changing jobs
The Association for Savings and Investment South Africa (Asisa) says a major reason for low savings is the fact that members take their savings in cash when changing jobs. See your retirement savings as just that: savings for when you retire one day. Cashing out when you change jobs will only jeopardise your financial future. You will also lose out on compound interest, where you earn interest on your interest.
Challenge yourself to cut your luxury spending
Each person has their own weaknesses. For the sport fanatic, it could be expensive running shoes; for the fashionista, branded clothing; for the adventurous, luxury holidays. Think about your weaknesses, challenge yourself to cut your spending on those items, and redirect that money to your emergency savings account, says Burger.
Invest in a more economical vehicle
With the increase in the cost of petrol, it might be worth your while to investigate buying a more economical vehicle. This could save you a small fortune, especially if you can negotiate to work from home a couple of days in the week so that you can stretch your petrol money even more.
Talk to a financial advisor
During these uncertain times, it is good to speak to your financial advisor. They are trained and qualified to support and guide you to reach your financial goals for the future. “One bad financial decision today can affect your entire future. If you are consulting an accredited financial advisor, you won’t make emotional decisions based on the instability that we are all facing today,” say Burger.