When necessities feel like luxuries

The National Budget ’22 put the country’s focus squarely on stabilising debt and reducing the fiscal deficit. And even though there were no increases to personal income tax, rising inflation makes this a wise approach for private citizens, too.

Consumer price inflation is a permanent fixture in our financial lives, but just as government can’t simply stop spending on healthcare, education and infrastructure development; individual consumers can’t simply stop paying for school fees, medical care or insurance. If COVID-19 taught us anything, it’s that some things that feel like luxuries are life’s real necessities.

As we heard the finance minister say yesterday, “Our economic recovery has been uneven and risks remain high. We must proceed with caution.”

Ahead of the Budget, Liberty Financial Adviser, Sheila-Ann Robey and STANLIB economist, Ndivhuho Netshitenzhe, raised the question of whether Minister Godongwana would take measures to help ordinary families struggling with rising living costs. South Africa’s annual consumer inflation rate eased to 5,7% after reaching 5,9% in December 2021, but the repo rate is starting to edge upwards and the ratio of household debt to disposable income was at 67,8% as of the third quarter of last year. While the Minister of Finance provided some measure of tax relief, and extended income and employment support to the most vulnerable, there was little in the 2022 Budget to indicate that finances will be any less stretched for the average person this year.

What this means is that – as with our national fiscus – it’s more important than ever for South Africans to carefully assess their financial situations, get debt under control and put constructive plans in place to help themselves cope with the continued upward spiralling of prices and inflation. 

Human nature dictates that when things get tough, we tend to panic – and that’s when mistakes can be made. What may at first look like the only option is sometimes not the best course of action - especially when it comes to choices made without the benefit of careful thought and planning. Insurance provides an easy example, because so many people consider their policies to be a luxury rather than a necessity. That means they’re among the first things to go when belts are tightened.  

If we have learnt anything from the unpredictability of the pandemic and the havoc it rained down on people’s lives, having a plan in place for a rainy day is one of life’s greatest necessities. As Robey pointed out in the article above, our society and economy have little support to offer us when times get tough: faced with job losses, mental and other health complications or our own mortality, the safety net that comes from insurance can provide a deep sense of comfort.  

Some careful financial planning could help you to save by, for instance, taking advantage of tax benefits available from the likes of tax-free investments and retirement annuities. Consider how you can adapt policies to match your income reality; and take your family on this cost-saving journey with you. We know that providing a solid financial foundation for our kids could be key to their success one day, but teaching them to love and not be afraid of investment could be even more powerful. Show them how you’re investing in their future using innovative and fun apps like Stash4Kids.

If there’s an important lesson to learn from 2021, it’s that securing our financial futures is up to each of us, and that time isn’t our friend.

The good news is, you don’t have to do it alone. 

Disclaimer:

This article does not constitute tax, legal, financial, regulatory, accounting, technical or other advice. The material has been created for information purpose only and does not contain any personal recommendations. While every care has been taken in preparing this material, no member of Liberty gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy, or completeness, of the information presented. 

Liberty Group Limited is a licensed Life Insurer and an Authorised Financial Services Provider (no 2409).