The 3 things that will affect your financial plan over the coming months
You started this year with all the best intentions. You might have reviewed your financial portfolio, assessed your investments, and confirmed your asset allocation in your investment portfolio – under the watchful eye of your financial adviser, of course. South Africa was seemingly inching towards the post-pandemic era, and while our Covid-battered economy was still shaky, things were looking somewhat more hopeful, ratified by a better-than-expected Budget Speech.
In a few short weeks, several occurrences may have influenced our best-laid plans, yet we could be left wondering, to what extent? Ryno de Kock, Head of Financial Planning and Advice at Consult by Momentum, shares the three things that could affect your financial plans over the coming months, and the level of their impact.
The annual Budget Speech – a minor impact on your take-home pay
South African tax-payers heaved a sigh of relief when the Finance Minister announced some tax relief during last month’s Budget Speech. Corporate income tax was reduced, there was an adjustment in personal income tax brackets and for the first time in more than 30 years, there was no hike in fuel levies.
In reality, says De Kock, the pressure on consumers and businesses hasn’t abated. “The personal income tax brackets were simply adjusted by 4,5%, linked to the rate of inflation. The intention is to offset the impact of inflation, but bear in mind that due to various macro-economic factors, inflation will continue to increase, so any positive impact is negligible.
“Ultimately, South Africans will not have more money in their pockets.”
De Kock adds that while there was no hike in fuel levies, the cost of petrol and diesel is already so expensive that there was no room for any further increase without pushing consumers beyond the brink.
“We have been seen more than a decade of very low economic growth in South Africa, which has contributed to our high unemployment rate of 46%. Consumers are under financial pressure as a result of low salary increases over the past few years, and lower-than-normal bonuses (if any). On the other hand, by international standards, we face a significant tax burden, when income tax, value-added tax (VAT), fuel levies and capital gains tax are taken into account.
“In our current landscape, our personal security, education, electricity, rates and taxes, medical and food expenses are increasing at a faster pace than our income growth.”
The Russia-Ukraine conflict – a medium (but short-lived) impact on your investments
Whenever there is market uncertainty, investors will experience volatility in stock markets, which impacts their investments. “Investors must be very wary of a common investment misstep, which is to buy only when there is good news and a promising recent investment performance, and sell when there is bad news, and after your investment value has decreased. By the time the average investor considers disinvesting as a result of a war, pandemic, financial or oil crises, it is generally too late, and selling will only lead to the long-term erosion of capital.”
He looks to the early onset of the Covid-19 pandemic as an example. “Had one de-risked their portfolio at the time due to concerns over market volatility, they would have ultimately made a loss and not benefited from the phenomenal rebound we saw shortly thereafter.
“The South African market has been fairly resilient in the face of this recent conflict, and we urge investors to stay invested.”
However, he says, the conflict will hurt us in terms of our fuel and food prices. This brings us to….
Food and fuel increases – significant impact on your monthly expenditure
Now that Russia’s oil is off the table – there is less supply in the market, which drives prices up. When fuel goes up, so does just about everything else: the cost of getting to work, the food on your table, and even the diesel in your generator when the lights go off, courtesy of loadshedding. The cost of bread may also increase, as Russia and Ukraine produce around a quarter of the world’s wheat.
This rise in fuel and food prices are contributing to South Africa’s increasing inflation. And when interest rates increase, debt also becomes more expensive, says De Kock. “If your car repayments are linked rather than fixed, you will now pay more each month. Those who saw a reduction in income as a result of the pandemic – and who subsequently took out a loan to make ends meet – will find themselves paying more in debt servicing. They may have been given access to more credit based on their previously untarnished credit record and historical income, and are now finding that their monthly repayments are costing them significantly more.”
In light of these three events, De Kock suggests that you consult with a qualified and experienced financial adviser, who can help you navigate the impact on your financial plans.
“Financial plans are dynamic, but just as they can be impacted for the worse by broader economic factors, so can they be positively influenced by sound, financial guidance. The cost of engaging a professional and experienced financial adviser is marginal, particularly when you consider the potential consequences of making the wrong financial decision.”