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How Joe and Jane should respond to junk

The days of excess are over.

JOHANNESBURG – As the political and economic realities of South Africa’s fortunes unravel after S&P Global Ratings cut the country’s sovereign credit rating to junk, the impact of the downgrade for the average Joe or Jane is clear: the days of excess are over.

While the economic growth outlook has improved as the worst drought conditions subsided, global growth picked up, commodity prices stabilised and the electricity supply improved, predictions that the South African economy could expand by 1.3% this year now hang very much in the balance.

Expectations of two interest rate cuts in the latter part of the year – a move that would have provided some reprieve for highly-indebted consumers – will probably also be postponed at best, and may be off the table at worst. And should the economy fall into recession, further job losses will be a likely outcome.

The sad reality is that many South African consumers – even high-income earners – are already in a precarious financial position and just don’t have the flexibility to cope with added financial pressures.

Statistics from the Bureau for Market Research at Unisa suggest that on average, households earning between R33 334 and R57 333 per month, have no net income available for discretionary savings (see below).

Source: Bureau for Market Research at Unisa; Momentum

The Momentum/Unisa Household Financial Wellness Index 2016 reveals just how precarious the financial position of many South Africans really is. When asked how they would cope with an unforeseen expense of R20 000, almost 30% of South Africans who were considered “financially well”, indicated that they probably or certainly wouldn’t be able to handle the additional burden. South Africans are considered financially well when they can comfortably and sustainably cover their current and future planned and unforeseen expenses. The situation is much worse where individuals are financially exposed, unstable or distressed.

Source: Momentum/Unisa Household Financial Wellness Index 2016 

But perhaps the most concerning finding is that even among financially well South Africans, only about 23% plan for periods in excess of a year. Almost one-fifth of these “financially astute” individuals plan for one month or less.

Source: Momentum/Unisa Household Financial Wellness Index 2016 

Such shortermism could have a devastating impact on South Africans’ finances in the event of a big financial shock such as retrenchment. In the wake of a downgrade to junk, the likelihood of such shocks materialising has increased. Even just a relatively small unplanned expense may cause individuals to fall into a debt spiral that can take years to recover from.

“You can’t buy financial wellness,” says Danie van den Bergh, head of brand and marketing at Momentum.

Against this background, no financial advisor can sell financial wellness – it has to be managed, he adds.

He provides the following guidelines for financial wellness.

1. Partner with a financial advisor

This has to be someone who really applies his or her mind to your personal situation and financial goals and who can provide you with a proper financial plan. 

2. You won’t get anywhere without a budget

It is very important to understand how you spend your money and to stick to your budget. Engage with your financial plan and budget on a regular basis, Van den Bergh recommends.

According to the research, 64% of financially well South Africans have a budget.

3. Financial wellness requires a change in behaviour/financial courage

This is arguably the most difficult aspect of financial wellness as it will likely require some tough lifestyle decisions that may be uncomfortable in the short term, but it can go a long way in getting you on sound financial footing.

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So the BMR are suggesting that only about 50000 households earn more than 196k per month.Come on,based on the cars they drive, at least 4 times as many households in Joburg alone earn that sort of money!

I’m sorry, but I cannot believe that we’re that financially inept that if a household earns R78k after tax, that the savings rate is near 0%. That is just financial suicide…

I would seriously question the credibility of the in formation in the tables scheduled in this article. Particularly the one where it is claimed to be Statistics from the Bureau for Market Research at Unisa suggest that on average, households earning between R33 334 and R57 333 per month, have no net income available for discretionary savings.

That is a huge amount of money in anyones language, and if they cannot save just a little from that huge amount, then there is something drastically wrong with them or the presentation.

I therefore dismiss this article as complete rubbish.

I agree. I am a pensioner who (after tax) has just short of R25000 per month. I have saved consistently during my employment days (in addition to my pension fund) and now have a nest-egg on which I can draw if an emergency arises. I have avoided big flashy cars and a little Toyota AYGO is what I have – all paid for, as is my house. I am fully and comprehensively insured. I don’t smoke, drink a mere two glasses of wine per week, and my wife and I can afford to eat out twice a week. There ain’t much to spare, but it does show the benefit of stating to save from the earliest possible age.

Phil99 I’m in my late fifties and my wife and I have no debt, drive a Kia Picanto and live in a medium size house.We can’t seem to get by on less than 40K per month after tax.WE don’t live lavishly at all and I shudder to think how the average couple with a bond,2 cars and children get by.One can probably add 25-30k per month to what it costs us so I’m not surprised people clearing 75k per month are saving very little or nothing at all!

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