What we have experienced the last few months is completely unprecedented and very worrying for the majority of people. Lockdown is a first for all of us and it has created many unanswered questions regarding job security, finances, our children’s care, education and much more.
There is no quick fix or guidelines to be followed as we have never been in this situation before. Most of us will probably need to tighten our belts in terms of household expenses and, furthermore, see where and how any current capital can be either secured or utilised. There are, however, a few things to take into consideration regarding your finances going forward:
Emergency/short term capital
These crazy times once again showed us that we should always be prepared for the unforeseen happening. An emergency fund is a financial safety net for future mishaps and/or unexpected expenses. There are different views on the size of the fund (some recommend three to six months’ worth of expenses in the form of highly liquid assets, i.e. a money market account) but the important consideration is that it should be easy accessible without incurring some capital losses due to market volatility, or penalties for early withdrawal. The pandemic hasn’t treated everybody the same so this will obviously differ from person to person, but I think it is very important to build a fund like this for unforeseen events in the future.
Long term insurance/Medical aid
While a lot of people are under financial pressure, cover for life, disability, severe illness and medical aid policies are still as important as ever for the normal household. While the pressure of these premiums is real, it can be doubled should any of the abovementioned events occur, either to the breadwinner, spouse or even child! That said, I am not at all advising to act out of fear and just buy cover that you possibly may not be able to afford over time. Rather speak to your financial adviser about options available to you and your family for your family’s specific needs, and also determine in which events you will need cover the most. In challenging times clients can always reduce certain cover but before you proceed to cancel/reduce cover, let your adviser explain what the best option will be for you. He/she can help you look at other alternative cost saving methods (e.g. restructuring of your household expenditure) that could be utilised towards having adequate cover.
Short term Insurance
The same goes for short term insurance (your house, vehicle or business cover). If something goes wrong and a loss or damage incurs, you could (and most probably will) be left of in a worse position with regard to these assets. Again, speak to your adviser regarding options going forward. There are always options to relieve pressure and your adviser can help identify where you can possibly make cover adjustments that could result in a cost saving. Never just cancel without considering alternative options.
Long term Investing
Saving for the long term (e.g. for retirement or your child’s education) needs discipline and strategy over the entire period. Quite a few companies recently offered relief options with regards to monthly payments, but it is very important to make sure that you start contributing towards the end goal again. Otherwise the intended outcome may not be reached. Another factor that can help towards reaching your long term goal, is to not panic in times like these. People often withdraw all the money out of riskier assets (e.g. shares) after the market fell. In doing that, you will actually realize your loss, and it is extremely difficult to recover that money over time. This is a difficult concept as nobody wants to lose money, but one needs to stay strong and trust the investment strategy you originally implemented. What could be a paper loss only, can become an actual loss when you act on emotions.
Lastly, make sure your will is in order – especially if you’ve experienced recent changes in your life (e.g. relationship changes, bought new assets, sold assets etc.). Writing a will is especially important if you have children or other family who depend on you financially, or if you simply want to leave something to people outside your immediate family. Think about what you would like to happen to your hard-earned money and assets, and how you would like to distribute it.
Now, more than ever, it is imperative to make use of a broker who can guide and advise you with regards to any of the above. If you require any assistance, you are most welcome to contact myself or any of the other advisers at Vision Insurance Brokers to assist you.
Author: Conrad Wehmeyer (Vision Financial Advisor & Short Term Insurance Broker)