Based on historical data, it seems that a financial crisis is likely to happen every 25 years – give or take. The same data also shows that a recession is likely to happen every 8 years. Based on this research, it is clear that we are all likely to experience financial hardship at least once in our lifetime.
It’s in our best interest to be prepared as best we can. Thanks to lockdown, millions of South Africans took a knock financially. And the proof is in the pudding, with over 6.3 million applications for the temporary special COVID-19 SRD grant being offered by the government. Unfortunately, over 1.5 million were disapproved due to having some sort of income. A sticky situation for many indeed.
Many South Africans lost their jobs or experienced some sort of salary cut.
Many of us uttered, “If only…”.
“If only I had more savings tucked away, I wouldn’t be in this situation… “
“If only I didn’t have so much debt and so many monthly expenses, I would have been OK…”
But life is about taking the knocks and learning from them.
Here are 5 financial lessons learnt thanks to lockdown…
1. Live below your means
If anything, the lockdown has thought us that we can live a simpler life.
One of the biggest reasons why people fall into huge amounts of debt is because they don’t know how to manage their money. As a result, they spend more than they have.
Ultimately we all want to live a higher quality of life, but we can’t all afford to. Instead of buying expensive things with a credit card, we could have saved up the money and avoided making more debt.
Living below our means is to live each month with only the money that we earn.
For example, if your monthly salary is R20 000, then you should be aiming to spend less than R20 000 every month. You should be able to pay all your monthly expenses with your income.
Making debt to pay for living expenses is a one-way ticket to financial woe.
If you need to free up some cash, opt for the cheaper option when making a purchase and avoid overspending.
Living below your means will force you to manage your money like a pro.
If you want to live below your means and save more money, read our post The Art Of Living Within Your Means.
2. Understanding the importance of an emergency fund
You may have experienced a salary cut or even lost your job during due to COVID-19. Are you still able to pay all the bills comfortably until you get a new job or until your salary goes back to normal? Unfortunately, not many of us can say yes.
Not unless we had an emergency fund saved up.
What is an emergency fund?
An emergency fund is money that has been set aside in case of an unexpected event, like the lockdown for example. In case we lose our job or need to pay unexpected hospital bills. Or maybe we do need to do a large fixing project on our house due to unforeseen leakage… Either way, an emergency fund comes in really handy.
This fund is there to help you get through sticky financial situations.
Think about an emergency fund as your very own insurance policy.
When something bad happens and you need cash urgently, your emergency fund is there to save you.
How much do I need for an emergency fund?
The amount that you need to save is determined by your monthly living expenses.
The rule of thumb is to save at least 3x your living expenses.
For example, if you’re spending R20 000 on living expenses, your emergency fund should be R60 000.
If you can, increase your emergency fund to reach 6x your monthly living expenses. This will provide you with even stronger financial security.
Reaching this goal will teach you the financial discipline you’ll need to manage your money correctly.
3. Earn a little extra
Starting a side hustle is a great way to make extra money outside your 9 to 5. You can use this extra money to increase your savings, pay off debt or it could help you pay the bills when things get tight.
Ultimately, a side hustle will help you speed up any financial goals you may have.
Although a side hustle requires a lot of work, it can be very rewarding.
Read our post How To Make Money From Home, In South Africa to find the right side hustle for you.
4. Don’t sit with a lot of unnecessary debt
Be honest. How much financial stress do you have because of debt? And how much worse did it get during the lockdown?
Imagine how the lockdown would have been if you had no debt at all. What does that look like?
When the lockdown started a lot of people were holding their breath for the major banks to announce some form of debt relief.
Major banks decided to offer their customers a 3-month payment holiday. But all was not as it seemed. It soon became apparent that the payment holiday was a loan extension. In fact, these payment holidays are likely to have a negative impact on the consumers debt long after lockdown.
Unfortunately, debt is one of those things that we have to pay, even when we’re going through difficult financial times. And if you can’t afford to pay your debt on time, the banks will come knocking on your door.
Paying off debt should be a priority. Avoid letting debt come in the way of reaching your financial goals.
Read our post The DIY Guide: How To Get Out Of Debt to help you manage your debt.
5. Find financial help before it’s too late
If you have too much debt and can’t afford all your monthly bills during “normal circumstances”, you won’t be able to cope during a financial crisis.
If you can’t find a way to pay off all your debt, find financial relief before things get out of hand.
Thousands of people have found financial relief through the debt review process.
Debt review offers financial relief by reducing your monthly debt repayments and legally protecting you from creditors.
Debt Review allows you to consolidate your debt. This, in turn, allows you to lower your monthly expenses and free up extra cash that you may need for other monthly expenses.
You only have to pay one single reduced monthly debt repayment to your debt counsellor, and they will pay your creditors on your behalf.
The benefits of debt review:
- Receive a personalize monthly budget
- Make only one single monthly debt repayment
- Your assets are legally protected
- No harassment from creditors
If you are struggling financially right now, contact Debt Rescue today.
We can help you with your debt situation.
Educating yourself about personal finance can truly transform your financial situation. You don’t need to be rich to start saving, invest or be happy.
You just need to know how to manage your money better.
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