2020 - forever remembered as the year of the pandemic.
Lessons learnt from our strategist Sandisiwe Yengeni
As the year draws to a close (thank goodness), I have found myself reflecting on what 2020 has done to my financial plans. I came into the year with big goals of saving, especially towards retirement, travelling, and making sure I build up that safety net for rainy days. I was doing quite well, then the pandemic hit, and my well-laid plans went out the window.
For starters, my dreams of travelling were completely dashed, with most of the year spent in lock-down. Working from home meant I saved on transport but spent more on home supplies, coffee and all the other free things we take for granted at the office - it was not kind on my pocket. Then there was that salary cut for a few months as my company tried to navigate the financial implications of the pandemic, as well as increasing family responsibilities to financially assist back home given the pandemic. Alas…
I will admit that before my ambitions at the start of this year, I had been a bit sluggish in my savings and 2020 was the first year that I had intended to have better financial planning. This meant that while I had some form of a safety net, the pandemic caught me with my pants down for the most part. I had to then improvise, cutting costs where I could and adjusting my previous living standard to reflect the new reality of the times.
I am sure my story is all too familiar in a year like 2020. Too many plans dashed, new uncertainties and just trying to survive the financial curve-balls. With the year drawing to an end, it’s time for us to ask ourselves some difficult questions about how the pandemic found us financially, what its impact has been, and how we plan to move forward. Here are some questions that have helped me think and reflect:
- How were your savings when the year started?
- How did Covid-19 affect your financial plans (debt, savings, investments etc.)
- Were you able to cover your expenses and stay afloat during the year?
- What good/ bad financial habits did you develop during lock-down?
Thinking about how we were financially pre-Covid 19 and how the pandemic affected our standing is important as we head into 2021. With the virus likely to be with us for the near future, our troubles aren’t over yet. The planning for the upcoming year is crucial so we survive and thrive until we get back to some semblance of normal. I want to suggest a few tips that have been helpful for me this year that I plan to continue with going forward.
Start saving, but set realistic goals
I found that setting very clear savings goals helped me to commit to them. For instance, I have to attend a friend’s wedding in France next June. In order to set a realistic savings goal from January until my trip, I need to do my due diligence on the costs I am likely to incur. After I have assessed these, I will then break the amount into smaller amounts to save each month until my trip. Having a clear view of the costs helps me to calculate the smaller amounts, and therefore not have to incur a lump-sum in June.
Maybe your goals include an emergency fund, next year’s school fees, getting that lounge finally renovated, increasing your contribution to that retirement fund. Whatever the goal is, being very specific and then working backwards to calculate the necessary monthly amounts goes a long way in smoothing out your costs.
Focus on balancing the short and long-term needs
A lot of people tend to focus on the immediate needs that are right in front of them when financially planning. They rationalise that while it might be nice to contribute to that retirement annuity, there are more immediate needs to consider. Indeed, as 2020 has taught us, there is a great need to have some liquid assets that you can access relatively quickly. These efforts to have liquid assets should however not come at the expense of saving for the long-term. According to research, the average South African who has been diligent about saving for retirement, ends up only achieving 40% of their targeted income replacement ratio for their final salary (FA News). This means that we need to be diligent and consistent in our savings to even reach our retirement goals.
If you’re struggling, seek professional assistance
While financial planning maybe intuitive for the financial gurus among us, for the average person, it can be a daunting and overwhelming process. Maybe you are struggling with debt acquired during the year, balancing how much to put into each of your budget bucket or balancing short and long-term needs. Whatever the situation, there are professional debt counsellors, financial planners and advisors who are more than qualified to assist you with getting your finances back on track. As we head into the new year, I would implore you to see professionals who can assist you, so you have some peace of mind in 2021.
May 2021 be the year we finally take charge of our financial lives even if the pandemic is still upon us, I know that’s my ambition! If 2020 has taught us anything, it is that we cannot be found ill-prepared when turbulent times hit. It starts with taking accountability and personal responsibility for our financial health, seeking help where we need to and not being myopic when we make financial plans.