Month-to-month living recipe for disaster

Cape Town - Most South Africans are falling deeper into debt or tightening their belts an extra notch, and can only dream of having some extra cash, according to Lisa Griffiths, associate director in Wealth Advisory at BDO South Africa.

Consumer inflation is eating away at their purchasing power and several years of no or below-inflation salary increases are taking their toll.

But there are ways for cash-strapped consumers to extricate themselves from the relentless cycle of reactive spending where merely paying the bills each month seems like a major achievement.

"Living from month to month is a formula for disaster," warns Griffiths.

"Without some form of savings, individuals and families are at the mercy of the next emergency – and there will eventually be an emergency of one kind or another."

These days, many people are not on medical aid and should there be a health emergency, they could also find themselves in a financial crisis.

Debt is expensive

A crisis could just as easily be brought on by large and unexpected car or house repairs, a death in the family or simply the cumulative effect of the debt-trap.

Debt is expensive, and the deeper one goes into it, the more the costs add up.

"Weathering life’s ups and downs while earning a salary is one thing. Retiring without having made sufficient provision to cushion the ‘golden years’ is quite another," said Griffiths.

It’s well known that far too many South Africans enter retirement without a hope of having enough money to see them through the rest of their lives.

Practical tips

* Giving up a policy for the sake of a short-term cash injectioncould turn out to be extremely short-sighted;

There aren’t many policies around these days that have an investment value.

"Should you have one of the older policies and it does happen to have an investment portion, I would strongly recommend that you seek good personal finance advice before cashing it in," said Griffiths.

"The insurer might well be willing to give you a loan against the cash value, tiding you over the hard times without forfeiting your life cover."

* Finding the right personal financial advice is a good rule of thumb for anyone wanting to move from reactive spending to proactive saving;
* Along with a good financial planner, put together a budget and plan investments that will cover your risk appetite and specific goals and timelines;

For instance, if you are close to retirement, you would typically be a fairly conservative investor with short investment horizons.

"Younger people with their careers still in front of them and future earning potential can afford to be more aggressive investors, probably in equities," said Griffiths.

"Once your personal finance advisor has helped you with your budgeting and financial planning, the ball is in your court."

* Through discipline and by breaking bad habits, you will be able to put your plan into practice and start accumulating a nest egg for whatever financial goals you have set yourself.

"It won’t be easy. Our consumerist society offers many temptations and staying on the spending straight and narrow can be challenging," said Griffiths.

"But you can do it – and for the sake of your financial future, you should do it. Best of luck … although luck is not the main ingredient of happy financial endings. Discipline is."

- Fin24

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