Learning from the past – to improve your financial future

The past few years have been difficult for most. Best-selling author Karen Salmansohn once said, ‘The most challenging times bring us the most empowering lessons.’ In this article, we look at five lessons that have empowered ordinary people to make extraordinary changes to their financial future as a result of the challenges they faced during the last few difficult years.

John learned that markets eventually bounce back when it comes to long-term investments. When the strict Covid-19 lockdowns were announced and investments started falling, John panicked and switched his retirement savings into a low-risk portfolio.. He made an emotional decision out of fear. When investments bounced back, he realised that he missed out on the recovery and had locked in his losses.

Karishma learned that debt can drag you down in unexpected markets. She was earning a good salary and comfortably covered her debt. She decided to buy a new car because her job required her to travel frequently. Then the unexpected happened. The markets became unstable with the war in Ukraine and petrol prices soared. Her company petrol allowance no longer covered her full petrol usage and the instability in the markets saw ongoing increases in interest rates and inflation. Her other, smaller debts became overwhelming for her

John’s lesson

I realised that in unstable financial markets, it is better to stick to your longterm plan and spread your investments out (diversify) if you want to get through the instability. Focusing on short-term changes won’t give you a reliable picture of how your investments are doing. And, if you are really worried, rather speak to a financial adviser before making emotional decisions about your life savings.

Karishma’s lesson

Rather pay off your smaller debts first before taking on any new debt like buying a new car. You never know what tomorrow will bring.

Solly learned that in times of financial distress, spending more time with his family and cooking at home saved him money and improved his family relations. He has two teenage boys and an unstable marriage. When Covid hit, Solly had to take a salary cut because he was working fewer hours. To save money Solly encouraged his family to cook meals together, take walks after dinner and watch family movies with home-made popcorn. It gave his family the quality time they needed to restore relationships while saving money at the same time. After a few months Solly realised that they were all getting along much better and he had some spare cash to save for a rainy day.

Tebogo learned that working with a budget keeps finances in check when times are tough. One of her friends helped her draw up a budget for her monthly income and expenses. Instead of guessing how much she had left for the rest of the month, Tebogo paid her bills, then divided what was left over into four and gave herself a quarter of the remaining money every Monday. It helped her to set spending boundaries, which helped her get through the months that followed.

Delia learned that she should always leave a margin of safety when it comes to big purchases such as cars and houses so that her repayments would still be manageable if interest rates increased. Delia bought a house when interest rates were low. Years down the line she bought herself a second-hand car thinking that she could just manage the payments. Soon after she bought her car, interest rates increased gradually over time. She could no longer afford her car payments because she didn’t make sure she had extra money available to pay for the increase in her car payments. She was forced to sell her car for less than it was worth because she couldn’t find a buyer.

Quick tip 2

Solly’s

Lesson

When finances are tight, find ways to have fun together as a family at home. Have a bake-off, picnic in the park, play board games – anything that inspires conversation and builds relationships without breaking the bank.

Having a budget helps you to keep a firm grip on your finances. It reminds you what you have to pay every month so nothing slips through the cracks. It is the only way to keep on top of your finances.

Delia’s

Lesson

If you buy a car or a house, add some extra money into the monthly repayments. That way, you pay it off faster and, if interest rates go up, you will still be able to afford the repayments at the original repayment amount. Always add a buffer.

Many retirement funds, during the worst stages of the Covid-19 pandemic, temporarily lowered or stopped fund contributions to assist members financially, which would lower the expected retirement outcomes. If you want to reach your retirement goals, now is a good time to increase your contributions or make additional voluntary contributions to make up for those lost contributions.