You CAN achieve financial wellbeing despite hardships.

The world has faced trying times, with the COVID-19 pandemic becoming a real threat in most of our lives. South Africa took remedial action by entering into strict lockdown in March last year. This has left its citizens in a state of uncertainty. What many of us didn’t realise in March was that we would still be facing this uncertainty entering into 2021. Simultaneously, we would be dealing with the aftermath of lockdown 2020.

We are living in unprecedented times, and it has affected the world’s population on various levels, from threatening our physical health to challenging our emotional and mental health. So too, our financial health has suffered. Some of us experienced it more directly than others. On a national level, the financial repercussions are undeniable.

Despite the inevitable negative effects that come with hardships, they tend to be paired with valuable lessons. For example, South Africans have seemingly become increasingly money savvy, and are paying attention to their financial wellbeing now more than ever.

Many of us have experienced the effects of tough times on our households' financial health.

What we know now about our financial health… lessons to learn

Of course, we are all susceptible to experiencing the effects of difficult times. Still, there are key lessons that we can learn about our finances. These can make us better money managers in the long run.

1. Be smart about spending

Your financial health: Lesson 1: Your spending habits can sink you.

The struggle to implement healthy spending habits is real, when facing challenging times. However, our uncertainty (and fear) can encourage us to adopt a new ‘spending culture’. It is a culture of caution and of mindfulness. During this time, we teach ourselves to practice control over our spending. We tend to make calculated decisions and act carefully before making purchases.

McKinsey & Company report that: “Feeling the financial impact from COVID-19, consumers in South Africa continue to see reduction in income, spending, and savings. Discretionary spending remains subdued, as South Africans aggressively adopt habits to save money” (Nov, 5, 2020).

In his book Destination Wealth, author Dave Fisher explains that your finances are like a river and dam. The process of earning your income and spending it is your river. You dam is the portion of your income that you set aside – your assets, like savings and investments. “You see, in the same way that water flows, so does money. Just as a dam holds water back for later use, you’ll build a dam to protect your money from frivolous spending and an unsustainable lifestyle.”

We have to practice mindful spending to ensure that the demands of our lifestyles don’t dominate and drown our finances. (Read this article to learn about the lifestyle trap and how to escape it). This ‘cautionary spending culture’ is a key takeaway from times of financial restriction.

2. Be diligent about monthly housekeeping

Your financial health: Lesson 2: Monthly housekeeping is a must. Draw up a monthly budget.

Times of financial hardship are good eye-openers. It makes us take a good, hard look at how we manage our monthly income. It urges us into taking a more hands-on approach with our household finances. By compiling monthly budgets, we have more control over our money management.

“Your budget need not be complicated or scary. A budget is simply a plan for how much money from each pay cheque you’ll put aside, and where you’ll put it.”

– Dave Fisher, Destination Wealth

You don’t have to be a financial expert to draw up and stick to a budget every month. With a dash of self-discipline and goals to keep you motivated, you can get started on budgeting your way to saving and investing more money, and lessening unnecessary spending. As Darren Hardy says “the slightest adjustments to your daily routines can dramatically alter the outcomes in your life”.

3. Invest strategically

Your financial health: Lesson 3: Don't keep all your eggs in one basket. Use budget buckets to make different investments.

We need all the financial security we can get, especially during times of difficulty. For example, the pandemic has caused job losses and retrenchment. Due to this, a large number of people cannot simply rely on their monthly income as a financial lifeline. “Between February and April 2020, the wave 1 Coronavirus Rapid Mobile Survey (CRAM) data indicates that the percentage of those not employed increased from 43% to 53% (13.7 million people to 16.5 million).” (Business Tech, Oct 1, 2020).

Economic downturns often lead to an increasing number of people losing their jobs and actively seeking employment as a result. If you’re employed and earning an income, now is the time to think carefully about where your income is going. Is it predominantly kept in the river to simply flow away with your expenses? Or are you diverting some of your income to your dam?

When you’re in the habit of diverting money into your dam, consider how to best store your wealth. Dave explains that “ninety percent of the average person’s net worth results from their wealth creation strategy, and their ability to stick to it”. In other words, it’s great to set aside money every month. However, you have to be strategic about where your money goes to accumulate wealth.

In his book, Dave introduces ‘budget buckets’. “As you accumulate money in your dam, it’s time to put that money in different buckets. These buckets are different investment accounts that vary depending on your goals for them. I advise all clients to commit a sizeable yet sustainable amount to their dam’s buckets from every pay cheque.”

4. Tend to your rainy-day fund

Your financial health: Lesson 4: Your rainy-day fund needs attention. Set aside money for your emergency fund every month.

The first, and most important, budget bucket to tend to is your emergency fund. Imagine yourself facing an unexpected situation that needs urgent money, such as your car breaking down or unforeseen medical costs. Have you put money aside for life’s unexpected curveballs? If not, your emergency fund needs to become an instant priority.

During this time, it has become evident how susceptible we are to unpredictable circumstances. We, as well as our bank accounts, are not invincible. According to Noluyolo Betela, “an emergency fund will provide you with access to money and prevent you from abandoning your long-term financial plans when unexpected expenses or emergencies threaten to compromise your financial health.” (Allan Gray, July 1, 2020).

A whopping 82% of South Africans report that their finances have been negatively impacted by the COVID-19 pandemic (in a TransUnion study conducted in May 2020). It is clear that we cannot rely on our monthly financial rivers to sustain us during the difficult times. Consider opening an easily accessible money market fund or other low-risk investment to store your emergency fund in.

5. Be mindful about money

Your financial health: Lesson 5: Money mindfulness is a must.

“We often take the way our minds work for granted, thinking that we feel a specific way due to some external influence or circumstance. Mindfulness is the ability to control the way we think instead of allowing our minds to be controlled by our environment.

– Dave Fisher, Destination Wealth

South Africans are becoming more cautious about their spending habits. What has been highlighted during these times of restriction is that people are more financially mindful. We think twice before making rash financial decisions or taking action regarding our money. This mindfulness may have its roots in fear and uncertainty. Nevertheless, it is a key takeaway: We must make strategic, calculated decisions regarding our money. We have to actively manage our money to avoid losing control of our situations and spiraling into a lifestyle that we are not able to fund.

Much like taking care of our physical health, we have to tend to our financial health as well. During these times, we realize that time and money are finite, and that we have to protect our financial health.

Maintain your financial health for life… passing ‘Life 101’

Despite all the negative experiences that come with unprecedented times, such as the one we’re facing now, what has come to light is our drive to survive. Financial survival has now become an essential motivator for how we manage our money. We are careful, better prepared, more protective and ever mindful. Tough times can teach us powerful financial lessons. These will ensure our financial health and longevity during the good times and the bad.

Dave summarises what passing ‘Life 101’ means: “ensuring that the daily lifestyle we enjoy is protected from unforeseen risks with a risk strategy, that you are not spending all your money in the river and that you are allocating enough to your dam to provide for an emergency fund as well as acquire wealth creation to achieve your life goals and ultimately enjoy a carefree retirement.”  

Purchase your copy of Destination Wealth today.

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