How to cope in tough times

Angelique Ardé | 29 July 2021

Angelique Ardé is a writer and copy editor based in Cape Town. In her almost 30-year career in journalism, she has spent 15 years specialising in personal finance. She believes financial literacy and inclusion are integral to social justice and this specialist subject needs to be widely accessible: communicated plainly, honestly and without commercial bias.

When you’re under financial pressure and panicking about money, it’s easy to make bad choices. Fear can inspire hasty and unwise decisions, which you may live to regret. If you’re in a crisis, slow down your thinking, weigh all your options and take control over that which you can control. 

Hester van der Merwe, a financial planner who holds the Certified Financial Planner (CFP) accreditation and was the 2020 recipient of the Financial Planner of the Year award, says a budget helps to create a sense of control. Even if the picture of your personal finances is not rosy, a budget is the first step towards recovery, she says.

“I always hope to be the financial expert in the room, but my client will always be the expert on his or her life, and we have to work as a team to build the best possible financial plan. To really be an expert on your own life, you need a budget to be as accurate as possible,” she says.

“A proper budget is the cornerstone of any successful financial endeavour – including your personal financial plan.” 

Johan Swart, who is also a CFP, says people who don’t budget tend to spend more than they earn, which results in them having to rely on credit.

As part of your budgeting exercise, you might need to sit down with your family and have an open conversation about household spending, he says. For the budget to work, it may require sacrifices from everyone.

Cut luxuries, not life cover

Cutting back on luxuries isn’t easy, but it’s better than cutting back on your life cover. Better, but not easier.

As Van der Merwe says, luxuries make us feel better about life in the moment, “whereas a life insurance premium has never given anybody that warm fuzzy feeling”.

“The trick is to focus on your objective [the purpose of your life cover]. You want to provide for your loved ones when you’re no longer there to take care of them. Focus on this and what their lives will be like when you’re not there.

“Also, don’t fall into the trap of thinking you will cut back now and reinstate your life cover at a later stage. You will have to be underwritten again and it is very likely that your premiums will be increased: you will be older, may have developed some health issues or the insurance companies may have increased the cost of cover,” she warns.

Negotiate your car cover

One insurance that you should be reviewing regularly with a view to adjusting your premium is vehicle insurance, the cost of which should reduce as your vehicle depreciates in value.

Swart says many insurers are now offering “pay-as-you-drive” options, or usage-based insurance. “These products offer significant premium savings, reflecting the new normal as people working from home drive less.”

He says that if you’re claims-free, you should also use this when negotiating with your insurer for a more competitive premium.

Increasing your excess will also result in a premium reduction, although this is not without its risk. You need to have saved the equivalent of your excess in an emergency fund.

If your negotiations with your insurer are unsuccessful, consider switching insurers with the help of a broker who can find the lowest premium without sacrificing cover, Swart says.


Hang onto your job – and retirement savings

One of the most desperate – and foolish – things you can do when you’re in financial distress is resign to cash in your retirement savings.


Using your retirement savings to survive financial devastation arising from the COVID-19 pandemic should be accompanied by a resolution to catch up on retirement saving, says Certified Financial Planner Johan Swart.  The only way to do this is to commit to contributing to your retirement savings at a higher percentage after the world and incomes return to normal, he says.

For example, if you were contributing 15% of your salary towards retirement savings and you chose to withdraw three months’ worth of salary to survive until you find another job, you might need to contribute 20% (your current 15% plus an extra 5%) of salary for three to four years after your income normalises before reverting to 15%. This will ensure that the financial hardship isn’t merely shifted to your retirement years, he says.

“Hopefully one of the lessons that the pandemic has taught us is that savings are extremely valuable and provide much-needed resilience during a crisis. Although savings can be used to help you withstand a financial crisis, it’s crucial that you have a clear plan in place to replenish those savings and keep adding to them on a regular basis so that you’re prepared for the next crisis, whatever and whenever that might be.”

At a time when there is an oversupply of jobseekers due to the number of people who have been retrenched, Van der Merwe says you run the risk of not being able to find employment again.

Compare the number of years you have available to accumulate enough capital for your retirement against the steadily rising number of years you are likely to spend in retirement as we live longer lives.

This will make you realise that you can’t afford to spend one year’s retirement savings on anything else, she says.

“Aiming to make up for this by investing a larger portion of income in the future also doesn’t make sense – the less time you have in the market, the more you have to contribute out of your pocket, and the less the market can contribute by way of long-term capital growth.  Time in the market is one of the most important aspects of retirement planning and you should never deprive yourself of that.”

Your pension fund capital is also protected against creditors, and the moment you withdraw this money you lose that protection.

Buhle Langa, a financial wellbeing consultant at Alexander Forbes, says that if you’re struggling with debt, before going for a consolidation loan or opting for debt counselling, make an appointment with your bank and other creditors to discuss a restructuring of your debts.

“Explain to them your financial situation and negotiate a payment plan,” she says. Get it in writing and honour the plan. This demonstrates goodwill, which will count in your favour if you need to renegotiate the terms of the plan at a later stage.

Preserve, preserve, preserve

If you have invested retirement savings in a preservation fund, this pot of money may be tempting to dip into when money is tight.

Van der Merwe says that in most instances, people plunder these savings to fund a lifestyle asset – do home improvements or pay off a car or other debt. “You should not move assets from your investment portfolio (pension and preservation funds) to your lifestyle portfolio,” she says.  

Again, consider your objective with your preservation fund:  to ensure you can maintain your chosen standard of living after retirement.  

“If you decide to take the tax-free amount only (which is R25 000), remember that you can make only one withdrawal from your preservation fund before retirement.”

Swart warns that any amount greater than R25 000 (up to R660 000) is taxed at 18%. Thereafter the rate of tax increases with the size of the amount withdrawn.

“It is important to remember that the tax on retirement fund benefits is cumulative. This means that if you have taken more than one cash withdrawal, you’ll be taxed on the total of those withdrawals. The percentage tax you will pay when taking your final retirement fund lump-sum pay-out will therefore be higher than it otherwise would be. The tax loss could, therefore, be significant.”

Van der Merwe says that if you find yourself constantly plagued by the temptation to withdraw your retirement savings you should consider financial coaching.  “Your financial well-being and retirement is as important as your physical health and you need to take just as good care of the one as of the other.”

Read more in our Retirement section