How to Covid-19-proof your finances when self-employed
Today, SA will have been in lockdown due to the Covid-19 pandemic for a week and those who are still working are settling into routines in home offices or at essential institutions and downtimes are spent confined at home.
A number of measures have been introduced, including a relief fund and tax relief for small businesses, assistance for individuals who owe their banks and unemployment insurance payments. Despite this, the next couple of months remain uncertain for many freelancers, entrepreneurs and small business owners whose income streams have, or will, dry up.
However, Lucille Sikosana, business development manager at Old Mutual Investment Group, says there are steps you can take personally and professionally to protect your finances over this period.
"Continue working remotely and servicing clients using technology to ensure you cover next month's invoicing. Ensure that you contact your debtors/suppliers and negotiate flexible payment terms. You can also approach short-term lenders to cover the shortfall in these payment gaps, however the success of this will depend on the risk analysis of the business."
Christelle Louw, advisory partner at Citadel, suggests you rework your personal household budget to meet your reduced income.
"In uncertain times, the first crucial step in addressing feelings of financial insecurity or anxiety is to take stock of your finances with a full and detailed lifestyle sustainability assessment," says Louw.
This assessment will also help you determine if you can stay on track to meet your financial goals. Doing so begins with you re-examining your household budget and may include trimming down on unnecessary expenses, she says.
However, if your expenses are pared to the bone and you still can't make ends meet, you should consider reaching out to any financial institution to whom you owe money to make payment arrangements.
This week, all the major banks announced they will grant repayment relief to those whose accounts are currently up to date in the form of reduced repayments or no repayments on home loans, vehicle finance, credit cards and short-term loans for three months.
At Standard Bank the relief is automatic for those earning R7,500 or less a month. There are also options for those who have small businesses and students with loans.
In most cases, the interest and the repayments you were supposed to make will be added to your loan and the term of your loan extended.
This means you will end up paying more in interest, but it may be worth it if it keeps essential expenses paid and helps you not to incur further debt or default on other payments.
If you take up the repayment holiday it should be a last resort after you have cut all expenses to the bone and only use it for as long as you need it. If you can pay something towards your loan, do so.
Nedbank is also offering customers with investments the option of withdrawing from them without penalties, even in fixed-term savings vehicles. The bank said it will waive the penalty fee for up to the value of R200,000 for consumers who need their money early due to cash-flow challenges experienced during this period.
Raiding your savings in crisis times like these is a good idea if your savings were meant for emergencies. But raiding goal-based savings, for example for the education of your children or your retirement, should only be a last resort, and if your only other option is to incur more expensive debt. Borrowing from your savings will rob you of compound interest, but could spare you paying compound interest if you borrow.
If you have money invested and it has suffered a loss in value, try to hold on to your investment as it will need time - possibly a long time - to recover. Sikosana says although it is normal for investors to panic sell during a crisis, it's not a good idea. "You will realise capital losses and forego the opportunity to participate in the market recovery."
When it comes to insurance premiums, Peter Nkhuna, senior assistant ombudsman at the ombudsman for short-term insurance, says it is unlikely there will be a blanket payment holiday.
Most insurers allow a 15-day grace period to pay outstanding premiums. However, if you are in financial distress speak to your service provider about how not to lose your cover or consider downgrading it.