The beginning of a new year is a good time to take stock and re-commit to financially savvy strategies to improve your life. As a follow on from our blog article last January (you can read it here) it seems that in 2023 the approach may need to be a little bit leaner and meaner. Fortunately, in this blog article you will find some tips and insights to serve as your Financial Survival Guide to help navigate the year ahead.

The speculation of a global recession looming persists, as inflation remains high, affecting the cost of living for almost everyone. A recession is defined as a decline in GDP (Gross Domestic Product – total value of goods produced and services provided in a country) in two successive quarters, which usually affects everything from employment, manufacturing, retail sales, and consumer income.
As we have mentioned before, major economies impact on the global economy as a whole, and the ripple effects are likely to affect us locally as well.

Now is the time to brace yourself for financial resilience. 2022 was a tough year for most, and as we enter another year of global and local economic and political volatility, we look to the lessons learnt from previous recessionary periods.

Here are TVC Wealth and Health Manager’s tips for safeguarding your wealth during the upcoming year:

Tip 1. Take a cautious approach.

While we can’t know for sure, it’s best to plan with the assumption that inflation, rising short-term interest rates, and market volatility will persist. Therefore it is best to exercise some prudence with your finances this year, thinking as logically as possible about your finances and avoid taking any major risks.

In fact, delay big financial decisions for now, if you can. For example, put off those big home upgrade plans, or that luxurious holiday you had planned. Reconsider that car upgrade and skip that second home purchase. It’s a good time to reconsider the difference between a ‘need’ and a ‘want’. Take stock of your financial priorities and work towards spending less, not more.

• If you are a business owner, rethink high risk decisions and even consider partnering with other businesses to strengthen your networks. In particular, make sure to have those contingencies in place for any possible risks to business cash flow, such as late-paying clients.
• As a working professional employed by another company, maybe now is the time to update your resume and reach out to those old contacts via LinkedIn – even consider upskilling, to make yourself indispensable or more attractive in the job market. Don’t take your job for granted, as recessions are often marked by job losses and retrenchments.

Tip 2. Revisit your monthly budget.

Having a budget is money management 101 – a simple case of looking at your income versus your expenses helps you keep tabs on your cash flow. Remember, whatever gets measured, gets managed.

Unfortunately, as the cost of basic necessary household items has been increasing as a result of rising inflation – such as petrol and groceries – more of your monthly income will need to go towards these basic expenses and goods that are classified as ‘needs’. As such, your budget will require adjusting by analysing the actual current costs. You may be shocked by the results, as most people’s incomes have not yet had the chance to catch up with such rising expenses.

Additionally, it’s worth preparing for a possible recession on the horizon. This will require you to be more mindful about your financial behavior in general, reprioritize your buying decisions and definitely avoid impulsive spending. Consider where your outgoing expenditure can be brought down, such as bundling your insurances or renegotiating your car repayment plan. Perhaps some of the discretionary monthly costs – such as entertainment or eating out – can be eliminated?

When it comes to the important savings and insurances, those who struggle with self-control should consider setting up a direct deposit that goes to a separate account or financial institution from the one where you keep the account to pay your bills. This method is especially beneficial for the following :

• Saving for tertiary education
• Emergency Fund
• Holiday/Travel Savings
• Retirement

Tip 3. Save a little more if you can.

After you have scrutinised your everyday expenses in your budget, consider where you could cut back in order to save more. Other than your essential expenses, where could you possibly cut back? A lot of expenditure can be unconscious and might be identified as wasteful or unnecessary. Consider redirecting that money to other goals instead, such as extra savings or paying off existing bad debt – which will be especially crucial when the economy is in its current state.

The golden rule for saving or investing is: Save First, Spend Later. By saving a fixed percentage of your earnings at the start of the month, this will ensure a strict savings habit thereby creating a platform of financial stability. Don’t forget the 50-30-20 rule, which means spending your income (after tax) as follows; 50% on needs, 30% on wants and 20% on savings or investments. However, the more you can save right now means stronger chances of financial resilience and reduces your financial stress in the long-run.

Sadly, recessions typically lead to retrenchments across different sectors, as profit margins suffer and companies are under pressure to stay afloat. This is where an ‘Emergency Fund’ comes in. If you don’t already have one, we recommend saving up to three months’ expenses for your Emergency Fund as soon as you can.

Tip 4. Avoid taking on new debt.

Last year we saw interest rates go up quickly, and there are signs it will continue on this upward trend. The result of this will be that the cost of borrowing will increase, which also means that your existing debts get more expensive. This is because, as interest rates climb, so too does the cost of debt. In the United States, mortgage rates have doubled over the past year. South Africa has already seen the prime lending rate increase from 7.5% to 10.75% over the past few months (three consecutive jumbo hikes of 75 basis points each).

This paints a bleak picture for borrowers and so we recommend paying off existing debts as quickly as you can and accelerating your debt repayment plans where possible – starting with any high-interest credit or debt. It’s important to pay your bills on time and keep the percentage of your existing credit lines as low as possible. At the very least, set yourself a goal in 2023 to not take on any more debt. In particular, avoid debt with high-interest rates such as certain credit card accounts. Aim to live within your means as much as you can this year.

Tip 5. Stick to your long-term financial strategy.

Yes, times may be tough, but this does not mean you should neglect your long-term investment plans or pull from your pension. Resist the temptation to cut your pension contributions or dip into your hard-earned savings. If anything, recessions and economic dips show us that these financial strategies for our future are even more crucial to stick to for improved wealth in the long run.

If you’re already an investor in the markets, it’s best to stay focused on your long-term goals, such as retirement. It can be tough not to be distracted by day-to-day swings in the markets, like when numbers are down, but the worst thing to do as an investor is make decisions from a place of panic and emotive reaction.

It’s not recommended to make dramatic changes to an investment strategy during a recession – the worst thing you can do is pull money out of the market during a downturn. Remember the cardinal rule of investing; avoid buying high and selling low. While the stock market could fall during the short term, its long-term performance is far more important, and there are benefits to waiting it out.

For example, a silver lining to rising interest rates is that some savings products actually earn higher yields and end up paying out more. For advice on this as well as your overall investment strategy, it’s best to speak to a professional Independent Financial Advisor with a CFP® qualification like TVC Wealth and Health Managers.

Tip 6. Consult with a Professional Financial Advisor

Checking in with a financial advisor is always a smart move. Now more than ever, financial education is important, so you can feel prepared regardless of the challenges 2023 may throw your way.

An Independent Financial Advisor might see ways to save on your existing insurances that you haven’t even considered. Or they could advise you on strategic ways to accumulate wealth, like Tax-Free Investment Vehicles and Retirement Annuities which aren’t taxed.

You can reach out to TVC Wealth and Health Managers today by contacting us here.

Conclusion

Like any other year, 2023 can be what you make of it. Being financially savvy is sure to ‘pay off’, and, as you can see from the above tips, there are ways to navigate this tricky period. From reassessing your spending, to bulking up your savings, paying down debts, and keeping a calm head about your long-term investment goals.

As the old saying by Benjamin Franklin goes “By failing to prepare, you are preparing to fail.” Armed with the right knowledge and with a little bit of discipline, there is no reason why 2023 should set you off course.