After a torrid 10 months following our first lockdown in March 2020, it’s unlikely that very many South Africans currently have financial peace of mind. Numerous studies have demonstrated a cyclical link between financial worries and mental health problems such as depression, anxiety, and substance abuse – with higher rates of mental health issues appearing in those who are heavily indebted. In this article, we explore ten factors that can cause sleepless nights when it comes to money and finances:
Debt is probably the single greatest stressor when it comes to financial planning and, unfortunately, very few South Africans are immune to torments of debt. Statistics from the Parliamentary Budget Office (PBO) reveal that the real disposable income of South African households contracted by 49.7% in the second quarter of 2020, predominantly as a result of the Covid-19 pandemic and lockdown. Survey results from fintech platform, PayCurve, show that almost 80% of South Africans seek expensive unsecured loans to help meet their monthly financial obligations; and according to DebtBusters, the 1.6 million South Africans who took advantage of payment holidays offered by financial institutions during the Covid-19 lockdown will pay an additional R20,7 billion in debt. Sadly, debt is an easy place to slip into but a difficult place to escape from and navigating the world of debt consolidation can be stressful. If you’re feeling overwhelmed by debt, be intentional about putting a debt reduction plan in place and seek professional advice if necessary.
2. Being owed money
Being owed money by a friend, colleague or family member can leave you filled with resentment and anger especially if the money is overdue. ‘Soft loans’ to those in your close circle, while seemingly innocuous at the outset, can cause endless amounts of bitterness and family feuds.
3. An outdated will
If you haven’t reviewed your will in a while, you may be second-guessing the contents thereof or wondering whether it reflects your current wishes. Personal circumstances change more frequently than we tend to realise – births, deaths, adoptions, divorces, property purchases or disposals, marriages and so forth – and if you haven’t revised your will regularly, the wishes expressed therein could result in your assets being distributed inappropriately. In particular, divorce is one of those life events that most certainly warrants a re-draft of your will and, in fact, is dealt with in Section 2B of the Wills Act 1953. Essentially, those who have recently got divorced are provided a grace period of three months from the date of divorce in which to amend their will. This means that if you die within three months of your divorce without amending your will, your estate will be distributed as if your ex-spouse had died before the date of divorce. However, if you have failed to amend your will three months post-divorce, it will be assumed that you intended for your ex-spouse to inherit from your estate.
4. Not knowing how much you need for retirement
Burying your head in the sand and hoping for the best is not a retirement funding strategy. If you’ve never had a retirement plan prepared and you don’t know whether you are putting away enough for retirement, this will undoubtedly be a source of stress for you. According to the 10X Retirement Reality Report, 67% of economically active South Africans have no retirement plan. 72% of those who have a plan are concerned that they will not have enough to live on in retirement, while 30% of South Africans have no retirement plan at all. Do not wait until you’re near retirement before seeking advice. The earlier you get retirement funding advice, the longer you have to rectify and adjust your funding strategy.
5. Not knowing if your parents are underfunded for their retirement
Most members of the ‘silent generation’ avoid openly discussing their finances which can be a source of huge frustration for their adult children – especially when it comes to their own financial planning. Not knowing whether your aged parents are sufficiently funded for retirement can be a huge source of anxiety especially when you are trying to save for your own retirement, fund your children’s education, and pay off debt. Ideally, seek an experienced financial planning practice that deals with multi-generational wealth planning, and start opening the channels of communication with your aged parents.
6. Not knowing where your money is going
As trite as this may sound, not knowing where your money is going each month can be a huge source of anxiety. Too many bank accounts, retails accounts, debit orders and budgetary expense items can leave you feeling out of control when it comes to personal financial management. The best way to circumvent the chaos is to begin simplifying your financial life starting with your bank accounts. If possible, use one banking platform on which to set up your various bank accounts. Ideally, get rid of your retail accounts and, if you need to access credit, use only your credit card. Go through your debit orders to ensure that they run at the most appropriate time of the month so that you don’t have to move money between accounts unnecessarily. Finally, consider using an app that centralises your financial affairs in one place so that you can get a single view of your circumstances and make informed decisions.
7. Not having access to cash
Not having access to cash can cost you money in the long-term, hence the importance of having an emergency stash in place. For instance, many schools and tertiary colleges offer sizeable discounts if you pay annually upfront. Without access to cash, these discounts will be out of your reach causing you to miss out on the saving. Further, without access to cash, you may need to take out expensive debt in order to pay for emergency expenses. Living from hand to mouth each month without building reserves can leave you in a precarious financial position should any unforeseeable expense arise, so make a concerted effort to create some form of slush fund as a backstop.
8. Financial uncertainty
Financial uncertainty, specifically when it comes to job and income security, is a huge stress factor for many South Africans. According to Statistics SA, our unemployment rate increased by 7.5% to 30.8% in the third quarter of 2020. The gig and contract worker economy has been particularly hard hit, and income uncertainty in this sector is a huge source of financial stress. Results of a survey published by Flourish entitled The Digital Hustle: Gig Worker Financial Lives Under Pressure found that 76% of gig workers experienced a large decrease in income from March 2020, and 91% are concerned about how Covid-19 will affect their ability to earn. 58% revealed that if they lost their main source of income, they could not cover household expenses for more than a month without borrowing.
9. Not being adequately insured
Not being adequately insured, specifically, if you’re the sole or main breadwinner, is another big source of stress. According to Asisa’s most recent Life and Disability Insurance Gap Study, millions of South Africans – specifically those under the age of 40 – are under-insured in respect of life and disability cover. According to Asisa, industry figures reveal that more than two-thirds of all salary earners will experience at least one disability – either temporary or permanent that will prevent them from earning an income. It appears that under-insurance is a result of a combination of factors, one of which is that people don’t fully understand their risks, specifically when it comes to disability. Further, many consumers don’t understand the different types of long-term insurance products and how they pay out. Ideally, find an independent financial advisor who can help you prioritise your insurance needs and do market research on the most appropriate and cost-effective products for your circumstances.
10. Not having adequate healthcare cover
Data from Statistics SA shows that more than 47 million South Africans are living without medical aid, with only 9.4 million people enjoying private healthcare cover – with the majority of these people situated in the Western Cape and Gauteng. In the absence of medical aid, very few people can afford to access private healthcare – specifically hospitals – and will be forced to rely on public healthcare facilities, most of which are buckling under the pressure of rising Covid-19 infections. There’s no doubt that medical aid is expensive, but it can provide enormous peace of mind. Lower-income workers can access an entry-level medical aid plan for just under R1 000 per month, with lower premiums for child dependants. Find an independent healthcare advisor that can help you identify an affordable medical aid plan that provides private hospital care as a minimum.