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Here’s how to recession-proof your money for the new year

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Picture for illustration.
Picture for illustration.
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According to the International Monetary Fund’s (IMF) World Economic Outlook, global challenges such as the COVID-19 pandemic, high inflation, volatile markets and the war between Russia and Ukraine have all contributed to a capricious situation that will see global economic growth drop in the new year – from 6.0% in 2022 to around 2.7% in 2023.

In short, we are on the brink of the world’s next economic recession, says Tasnim Alli, Insights & Innovation Lead at Metropolitan GetUp.

“Within a South African context, this will cause our cost of living to rise, as everyday necessities like groceries, transportation and clothing become that much more expensive. As the economy contracts, there are also likely to be job cuts, which will make trying to find a job much harder, spiking South Africa’s already-high unemployment rates even further.”

Alli adds that even though recessions are more commonplace than we realise – occurring when economies reach a peak, and the natural progression is to downturn – they hurt the finances of consumers already experiencing high levels of financial pressure.

“Recession-proofing your finances is the best way to protect yourself and your loved ones, helping you navigate the choppy waters that lie ahead.”

Alli shares several ways consumers can start to tighten up their finances, creating a safety net for the new year:

Understand cost and worth

Before buying, ask yourself, ‘what is the cost of what I am buying and what is it worth to me?’

Often, we go for the cheapest product to save some cash, but we may be sacrificing quality at the expense of longevity, causing us to spend more in the long run when we need to replace that product, says Alli. “Or we splurge on something that has very little value to us yet comes at a high cost because it offers convenience or makes us feel good.”

Interrogating the reasons behind why we buy allows us to make better, more informed financial decisions, causing a shift in our spending behaviour.  

Tackle debt quickly

Actively look for opportunities to either pay off or reduce your debt because as inflation spikes, banks raise interest rates to curb this, which means your debt will suddenly cost you a whole lot more. Can you change your spending habits and redirect some of these savings towards paying off your loans? 

“The quicker you repay your debt, the less interest you pay. If you have a great deal of money owing, look at debt consolidation offerings as they can help by managing and reducing your monthly repayments, through restructuring your debt to ensure affordability,” advises Alli.

Don’t over-insure

It may sound counter-intuitive, but the reality is that having multiple policies which offer similar features and benefits can often impact your affordability, setting you back.

“You may think, if something happens to one of my policies then at least I have another! Yet the more funeral cover you take, for example, the more expensive your monthly payment will be, warns Alli.

“And if you face financial trouble, it could lead to you losing your cover because you can no longer afford it.”

She suggests rather reducing your cover or benefits to ensure that you can continue paying your monthly premiums and retain the bulk of your protection. Metropolitan GetUp, for example, offers flexible fluctuating cover that can be adjusted in line with what clients can afford to pay.

Create a cushion

Whether through not buying costly take-outs or skipping that daily coffee from your local barista, redirecting those savings into a savings plan will help create a cushion for you as you prepare for what is about to come.

Hunt for good deals and flexibility

Hunt for good deals and flexible offerings from reputable financial services providers – they’re out there. For example, if you are in the market for funeral cover, Metropolitan GetUp offers policyholders the option to skip their premium payments in January, while retaining their cover.

“The holiday period is renowned for road accidents so being protected is crucial, says Alli.

“In addition, January is often regarded as the longest month of the year because we usually have very little money due to holiday spending. Through premium-skip options, you remain covered but get some financial relief, resuming your premium payments in February once all the craziness has died down.”

Alli says that it is important to find a flexible insurance provider who understands your circumstances and offers support during difficult financial times. This can include allowing you to pay what you can, when you can, or allowing cash or instalment payments in addition to debit order options.

“Selecting a provider that has relief mechanisms that cater for when times are tough, such as part payment and payment skip options, allows you to add and remove benefits according to your current needs, helping you weather the looming recession that much better.”

- ISSUED BY SJARN SWART ON BEHALF OF RVM COMMUNICATIONS
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