How to successfully negotiate the recession during the festive season

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Tlalane Ntuli

According to the South African Reserve Bank (1) business confidence, as reflected in the RMB/BER business confidence index, decreased to 38 points in Q3.  Growth in fixed capital formation is expected to remain weak and together with household consumption expenditure contracting by 1.3% in Q2, declining for the first time in two years, consumers are under financial strain.  This is exacerbated by weak employment growth and the year-on-year subdued growth of credit extension to households.

“Despite this less than optimistic outlook, the fact that SARB’s Monetary Policy Committee’s (MPC) decision to keep the repurchase rate unchanged at 6.5% per annum gives the consumer some breathing space, especially during the Festive Season, containing the current inflation rate from escalating further,” says Tlalane Ntuli, Chief Operating Office of Yalu, the leading online credit life insurance company, underwritten by a business division of Old Mutual, namely Alternative Risk Transfer Ltd (or OMART).

As South Africa experiences its first recession since the 2008 – 2009 global financial crisis, we look at how the economic downturn impacts on the consumer during the Festive Season, focusing on practical solutions to financially navigate this time.

1. Knowledge is power

“While economists speak about a technical recession, coming to grips with the term as a lay person can be disconcerting.  On a national level, the simple definition is two consecutive quarters where the GDP, the market value of services and products shows a negative growth,” says Ntuli.

What this means for you on a personal level is to consolidate your finances.  Start by working out your current financial status:  your debts, income and expenses – budgeting carefully when it comes to gifts.

“Once you have these facts, you are in a stronger position to take action and remedy any weaknesses, giving you peace of mind over the holidays,” says Ntuli.  “The two most important actions to help you survive a recession are surprisingly simple: reduce your debt and increase your savings.”

2. Essentials vs Indulgences

Differentiate between essentials vs nice-to-haves.  “Keep a tight rein on your spending by recording your expenses and purchases.  A daily small cooldrink adds up over the month.  Rather save that money, putting it towards building up an emergency fund or using it effectively to decrease any current debt,”

Draw up a budget so that you make allowances for some treats, allowing you and your family to celebrate this time while making sure that you don’t overspend and still have money over to put away. Another strategy is to compare prices. “Whether it’s looking at the choice of benefits and rates from different banks or the cost of insurance policies, it definitely pays to compare quotes and offerings,” says Ntuli.

Go over policies with a fine-tooth comb.  Are you paying credit life insurance on your loan?  And if so, what is the additional cost?  Shop around to see what’s available on the market – both in terms of price and benefits.  You don’t have to take out credit life insurance with the company giving you the loan. Exercise your freedom of choice.  It could mean extra savings for you and your family, “says Ntuli

3. Avoid further debt

Recession inevitably impacts on employment with business sectors becoming more conservative and reducing their hiring budget.  In this climate it is best to focus on paying off your debt as quickly as possible rather than taking out further debt.  See where you can cut down over the Festive Season, buying what you need and waiting until you have more money to buy anything outside of this (and only if really needed).

Plan to reduce short-term debt such as a personal loan or student loan by putting extra money into the highest interest-bearing account first.  Whenever you have additional funds deposit it into your loan account – even as little as R20 can add up, helping you to pay off your credit at an unexpectedly quicker rate.

4. Learn to save

Be vigilant when it comes to the money in your bank account.  “When it’s nearly the end of the month, we often become more aware of each cent we are spending.  Apply this same principle to your expenses throughout the holiday time and you’ll be surprised at your savings,” says Ntuli

Set up a goal to have funds still available in your bank account at the end of the holidays.  If you carefully watch your spending, you can manage your finances so that you have money in your account for that unexpected expense or debit order that goes off before your first paycheck.

Additionally, just having the additional money in your account can boost your self-confidence and bring additional security into your life.

5. Find out your insurance cover options

If you have taken out a loan or if you have taken out credit life insurance directly with an insurer such as Yalu, you may be covered if you can’t meet your monthly repayments.

“Consumers are often unaware that they are being charged credit life insurance as part of their loan amount.  Consumers can shop around for other credit life insurance quotes. But, because they may not know this is being factored into the loan amount, they won’t realise they may be eligible to claim the benefits of coverage in times of need,” says Ntuli about the policy which pays out in the event of death, disability, terminal illness and unemployment.

Research and awareness is key.  Find out the details of your loan or the details of your current credit life insurance policy. This could mean being able to claim from your policy, helping your family during this difficult time by paying your outstanding debt.

“In this time of recession, consumers need all the help they can get in order to remain buoyant.  Bear in mind, that no matter how tough the situation may be, recession is a natural part of the economic cycle.  By implementing strategies to remain buoyant during this time, you can plan to negotiate the current economic environment.  This includes finding cost-effective ways to make the most of the holiday season, waiting it out until the inevitable turnaround of your finances and the economy,” concludes Ntuli.