South Africans have had to contend with a variety of increasing prices across the board, including but not limited to increasing fuel prices, rising interest, and inflation rates, and a continuing struggle to keep up with increasing food costs month after month. The increase in the price of living has put pressure on customers, and it has become increasingly difficult to save money as a result of this.
Research conducted by Momentum Unisa reveals that customers already possess a poor culture regarding savings. It was also found that South Africans aren’t particularly knowledgeable about issues about the economy and money. As a consequence of this, the choices they make regarding their finances are not always the best.
The study also implies, according to Janine Horn, Financial Adviser at Momentum, that customers regrettably don’t have bigger access to immediate savings; however, this is not the case. A significant number of consumers have been compelled to forgo their savings goals to meet their living expenses and make payments on their existing debts.
According to Horn, this is especially true for young people in South Africa who have a feeling of being monetarily exposed and uncertain. This means that even a relatively minor negative event can result in a significant degradation in the state of their financial affairs.
They have restricted funds available to repay their outstanding debts as a result of the pressure on their income and expenditures. To say nothing of concentrating on emergency funds and planning for retirement.
In conjunction with July Savings Month, an event that encourages consumers to work toward surviving inside of their methods and to encourage appropriate financial behavior, Horn provides several helpful hints for young people who are straining under the weight of their financial responsibilities.
It is Possible to Be Youthful and Financially Savvy at the Same Time
You’ve completed your education, found your first job, bought your first vehicle, and are now ready to leave the nest you shared with your parents. Congratulations! The mail never stops delivering the bills. You can now legally be considered an adult. Even though it is a thrilling milestone in our lives that we must all go through, it can be difficult to navigate the financial strain of adult years, particularly in the foggy current economy that we are experiencing today.
According to the most recent report from Momentum and Unisa on their Consumer Financial Vulnerability Index, factors such as rising costs of food and fuel, unemployment, political unrest, and Russia’s invasion of Ukraine have been identified as additional risks that have the potential to raise consumers’ financial frailty in the future.
The index also found that South Africans have a low level of knowledge regarding issues about the economy and money. As a consequence of this, the choices they make regarding their finances are not always the best. Janine Horn, a Financial Adviser at Momentum, believes that this is especially true for South African youth, a large number of whom find themselves in extremely precarious situations.
When you earn less and have little expertise, financial woes can accumulate, particularly if you currently have people relying on your salary, says Horn.
Horn identifies four frequent financial blunders that should be avoided to position oneself for future financial success and to reduce the likelihood of feeling regret in the future:
Postponing Retirement Savings
According to Horn, planning for your retirement should take up a significant portion of your overall financial strategy. According to the findings of the research, only 6% of South Africans are in a position to retire comfortably. This indicates that the remaining 94% are unlikely to be able to maintain their current standard of living once they reach retirement age.
According to Horn, “one of the reasons why individuals find themselves in the position where they do not have sufficient funds to retire is because they begin saving late.” To guarantee that you will be able to achieve your retirement objectives, you need to get a head start as soon as possible and put away as much money as you can when you are still young.
According to Horn, people who put off starting their retirement savings until later in life will never be able to catch up to those who get a head start. Compound interest, which is primarily interest on interest accrued over time, is the primary reason why it is financially beneficial to begin saving at a young age.
In addition, Horn asserts that a significant number of younger people are unaware of the beneficial tax breaks that the government offers to people who put money away in retirement accounts. When you contribute to a retirement plan, you can take an accumulated tax reduction of up to 27.5% off of your PAYE if you reap the benefits of the pension contribution tax deduction, which is one of the tax-deductible advantages that gets the least amount of use.
Not Establishing a Savings Reserve for Unexpected Costs
To keep up with increasing living expenses and make payments on their existing debts, many customers have been pressured to forego their ability to save money. However, according to Horn, saving is one of the most important aspects of a successful financial plan.
Horn gives the piece of advice that “when life gets in the way, you are going to need access to funds to tend to unexpected situations.” “Whether it’s a car that breaks, a broken refrigerator, or a roof that leaks, there are a thousand things that could go wrong. It is recommendable to have a savings fund designated for emergencies to handle these costs.
Utilizing Debt in Place of Cash
According to Horn, having access to credit is not an excuse to live a lavish lifestyle, in contrast to what some younger folks who have recently received their credit cards may believe. According to Horn, “debt could be the single most significant source of anxiety when it relates to financial planning.”
The costs associated with things like credit cards, clothing accounts, and personal loans can quickly add up. “Don’t lose sight of the fact that we are living in a time where inflation is turning into a serious issue. The higher the rate of inflation gets, the higher the interest payments on our debt are going to be.
The Lack of Life, Health, and Disability Insurance as Well as Medical Aid
When Horn talked about how “life happens,” he meant that this piece of advice applies to much more significant problems that have the potential to completely upend your life. You can’t anticipate what life will hurl at you, whether it be the passing of a loved one, a terrible accident that leaves you disabled, or even the need for immediate surgery to treat a condition that has suddenly manifested itself. This is the reason why, according to Horn, you need to ensure that you are prepared for any circumstance.
According to Horn, “when it concerns insurance, the whole idea of it is to receive the assurances that when such situations arise, you are protected financially,” and this is the reason why people purchase insurance. “You don’t want to know what the cost of even a single stay in the hospital can be, let alone living with a permanent disability. Learn your risks, and if necessary, purchase the appropriate insurance, so that you aren’t left destitute and unable to make ends meet.
According to Horn, it is extremely improbable that the economic climate that the majority of people living in South Africa are currently experiencing is going to improve shortly. “There is a good chance that you will get into some sort of financial muck shortly. If you’re feeling anxious, you should speak to a financial planner so that they can help you consolidate your debt, set savings goals, and manage your pension and insurance portfolios. You will never have to travel down this road by yourself,” Horn says in conclusion.