South Africans are struggling to cope with the cost of living as inflation impacts just about every living expense. Fortunately, there is some relief for those willing to make changes as Liberty’s financial advisers say with the right advice consumers can manage their living expenses.
Liberty adviser Sheila-Ann Robey explains that with interest rate increases there can be an upside: “For consumers who do not have much credit to service, it is a good time to capitalize on the higher interest offered in saving and investment vehicles. However, the interest rate that investors are likely to receive may still be lower than inflation, which means that the real rate of return from a cash investment (such as a fixed deposit) will still be lower than desirable,” Robey says.
She continues, “Equity based investments are usually negatively impacted by rising interest rates. The best advice is to develop a long-term strategy with your financial adviser because interest rates and markets are ever-changing. The strategy adopted by you as a consumer, needs to be a suitable and a long-standing one, unique to you.”
NEGOTIATING REPAYMENTS ON TIME
When it comes to renegotiating repayments on your debt as a result of the inflationary increases, according to Sindi Mondi, Investment Specialist at Liberty, “timing is everything”. “What will be your saving grace in ensuring your success in negotiating with your lenders, is to have a recent history of on-time payments.” “Having a good payment record improves your chances and you’ll be well-positioned to ask for a better rate. Persist and be courteous as you negotiate – it is possible,” she says.
Mondi explains that fixing your debt repayment rates helps with budgeting, as the cost of that debt is certain and will not be subject to change with inflation-related shifts in rates. “It is common for most consumers to want to fix their rates in a high inflationary environment. The challenge comes when the tide turns. As a consumer with a fixed rate, as the rates come down, you would be locked at the level that you’re fixed at. So the question around, ‘to fix or not to fix’ needs to be well thought out and planned,” she adds.
FACE YOUR FINANCES
According to credit scoring company, TransUnion, at least 38% of South Africans are unable to service their loan repayments – this despite the company’s latest Q4 Consumer Pulse Survey showing that 67% of respondents had reduced their spending on “extras” such as dining out and entertainment. “It’s always a slippery slope when one starts falling behind on bills,” Robey cautions. “The best approach is to relook your budget to see what can be reduced or cut out, an exercise that can be done with a financial adviser. And allow for open communication with credit providers.” Mondi adds, “It’s common courtesy to keep a healthy relationship with your creditors. When you find yourself falling behind, be the first to make contact. When you make a promise, honour it. It is common for people to go through rough patches. However, don’t let it compound as you avoid the calls from your credit providers.”
KEEP AN EYE ON YOUR RETIREMENT SAVINGS
“Inflation can significantly impact those nearing retirement by reducing the purchasing power of their savings”, says Kobus Kleyn, another Liberty financial adviser. “Delaying retirement, if possible, can give you more time to build up your savings and plan for the future while taking advantage of compound growth. Adjusting your investments and financial planning to mitigate the impact of inflation is essential to having a long-term positive outcome while maintaining your purchasing power.” According to Kleyn, this economic environment is not easy to navigate, “My clients and I are taking a long-term view of their finances and focusing on diversifying their investments; we focus on finding platforms with efficient tax mitigation, low-costs and fees. We are also looking at solutions with low-interest rates to refinance debt and re-evaluate their budgets in detail, while removing nice-to-have expenses, to ensure they are on track to meet the financial goals we regularly set in our progress consultations.”
STAY INSURED
All experts agree that when times are tough, as they are now, insurance products may offer a silver-lining. Kleyn explains, “insurance is designed to protect you, your assets and your family during life-changing events, and without it, you could face financial ruin.” Mondi expands: “Any product or service you buy is for a specific purpose. So is insurance. There is a saying that, ‘when it rains, it pours’, meaning that when something bad happens, other bad things usually happen at the same time. Insurance is there for those times when things just don’t work out. Once you have insurance, do everything thing you can to keep it active.” Robey concludes, “Illness, injury or death may be the cause of further financial ruin not just for you, but for your loved ones as well. Cancelling an insurance and attempting to resume cover at a later stage means undergoing the underwriting process again. There is no guarantee that you will secure cover at the same rate or on the same terms. It is always advisable to keep your insurance cover in place and look to tighten your budget in other ways.”
