A post-budget guide - what to talk to your financial adviser about
Three P’s you need to discuss with your financial adviser after the recent emergency budget speech.
Although the supplementary Budget Speech on Wednesday was touted as an unprecedented emergency intervention – it left quite a few questions unanswered especially in terms of the highly publicised public sector wage bill discussion, quelling widespread corruption and just how government plans to make up a more than R300 billion shortfall in tax collection. What was clear, however, was that South Africans will have to cough up more from next year to foot the bill – and they will need sound financial advice to help weather this.
According to Janine Horn, Financial Planner at Momentum Financial Planning, the government is going to have to borrow double the amount of money it did last year to survive, further damaging our already fragile economy. She explains that this will have a trickledown effect on us all – bringing the need for proactive, financial advice to the fore.
Although specifics around tax and other measures that directly impact consumers will only be fleshed out in February 2021, your financial adviser has a critical role to play in helping you get your finances in order in preparation for what is shaping up to be an expensive 2021 and beyond.
“Add to this the projected rise in unemployment and you’ll find that income protection and shoring up emergency savings will become a number one priority for millions of South Africans and their households. We are going to need our financial advisers more than ever in the year to come.”
When asked what to discuss with your financial adviser after the budget speech, Horn says the preparations will need to be threefold – she says we need to prepare, protect and provide.
1. Prepare for taxes
Tito Mboweni announced the plan for R40bn in tax hikes over the next four years in an effort to boost income. That is going to start with a R5bn increase in 2021. “Increased tax means decreased spending, so consumers will need to seriously and extensively review their financial goals and aspirations to account for these tax increases,” says Horn.
Further to this, as the country amasses extraordinary levels of national debt, SARS will certainly adopt a more stringent approach to tax collection. Anyone banking on that tax return is going to need to fight a lot harder for it as SARS will be hesitant to hand money back to consumers without adequate evidence.
2. Protect your income
Horn says we should still brace for more job losses in the coming year. “Now is the time, more than ever, to ensure that your ability to earn an income is protected. This means looking at your level of retrenchment cover and disability insurance cover wherever possible.”
As debt is the enemy of income, Horn advises that interest rate cuts should not be seen as a good reason to amass more debt. “Economist are saying we may see another rate cut next month. While this is a short term relief, people need to exercise extreme caution around taking on debt even when interest rates are low. Rather use any extra cash to pay off existing debts as repayments will be lower, too.”
3. Provide for the future
All of the above cascades down to the financial wellness of South African households. Horn says loss of income and tenuous employment situations mean that people need to ensure they have emergency savings. “Technically we should all be saving 20% of our income, 5% of which should be for emergencies. A rainy day fund is a must, and should ideally include at least six months of living expenses. You can be sure that the rainy days are coming, and are already here for so many South Africans.”
Horn suggests that the best way to do this is to look at it holistically in terms of recalibrating your financial plan. “COVID-19 changed the way we live – so it goes without saying that our financial plans will need to be adjusted in order to take this new reality into account. This may mean different things for different people. For some it could be having to change goals entirely, for others it may mean reprioritising or simply shifting timelines. But what is applicable to everyone, no matter who you are, is that it’s critical to have a financial plan, and if you have one, it’s an opportune time to get in touch with your financial adviser to adjust it for our new reality.”
“South Africans are going to be looking to trusted partners to get them through this, which means that financial advisers have just unofficially made it onto the list of essential services,” concludes Horn.