The year 2020 is proving to be a hard financial year for almost everyone. For some it’s a financial disaster. No matter how you feel the financial pain, this is the time to learn some hard lessons so that you can live a better financial life in future. 

Jaco Prinsloo, a financial adviser with the Certified Financial Planner accreditation at Alexander Forbes, drew up this list of lessons to which we have added some insights from other investment and financial planning professionals:

Lesson 1: Debt can be scary

There are few things scarier than losing your income when you have debts to pay at month end, Prinsloo says. 

He suggests if you were one of many South Africans in this position, you ask your creditors to help you with a manageable repayment plan. Being proactive will help you negotiate better terms and protect your credit record, he says. 

When your income recovers, take advantage of the low interest rates to pay off your debt as quickly as possible to avoid finding yourself in this situation again, he says.

Sonto Lemeko, head of voice and digital at Standard Bank Financial Consultancy, says working from home and other lockdown restrictions may be saving you fuel or transport costs and living and entertainment expenses that you can use to pay off as much debt as possible. 

Start with your most expensive – usually your credit cards, clothing accounts or unsecured or personal loans, he says. 

Comfort shopping is human, but right now the best way to deal with your anxiety about the future is to ignore those impulses and to build up some savings, Lemeko says.

Lesson 2: An emergency fund is key

Tough economic times really prove the value of having emergency savings. 

Prinsloo says if you don’t have an emergency fund, now is the time to start one with whatever savings you can afford.

Kevin Lings, chief economist at Stanlib, says South Africans have completely neglected what he calls precautionary savings that should ideally equal three months of expenses. 

Lings suggests you try to save one month’s worth of expenses each year for the next three years.

Invest in a lower-risk investment like an income or enhanced income unit trust, but don’t leave these savings in a bank account that is easy to raid, he says.   

Lesson 3: Staying the market course 

March 2020 reminded us that financial markets don't always go up, Prinsloo says. Seeing your hard-earned savings going down with the stock market is very frightening, but don’t be tempted to lock in your losses by withdrawing at the bottom, he says. 

Anyone who did will have lost out on the amazing recovery in the second quarter of the year and be earning low interest rates from bank and money market funds.

Momentum Investment’s economist Sanisha Packirisamy, and head of investment research Herman van Papendorp says global equity markets measured by the MSCI All Country World Index shot up 19.2% in the second quarter of the year.

The local equity market staged a firm recovery of 23.2% in the second quarter, the local All Bond Index climbed 9.9% and the FTSE/JSE SA Listed Property Index recouped 20.4%.

Packirisamy and Papendorp say such quick rebounds could be followed by another negative surprise particularly as share prices do not seem to reflect expected weaker company profits. But if you are saving for a goal that is still years away, don’t focus heavily on the shorter-term falls and recoveries – all you need to worry about is that longer term your investments are growing at above-inflation rates. 

Lesson 4: Live within your means  

Pay cuts, lower business income and job losses have exposed the fragile financial lives of those of us who have been living beyond our means.

Living below your means is a lot like eating healthy – you know you will have to give up a few things and that it's going to be hard, Prinsloo says. 

But you can find a balance between enjoying life and living below your means – work out how much you need for essential expenses like bills and debt repayments and save for the future spending on things you enjoy, he says.

It might mean giving up a few luxuries now, but being free of debt will give you more to spend on the things you want.

Lesson 5: Stay covered 

While fit and healthy, it's easy to question the importance of your medical aid and insurance policies, but a health crisis like this one is a good reminder why you have them, Prinsloo says. 

If you are unable to pay your premiums, consider downgrading, but try to keep your cover.

Lesson 6: Get support 

When unexpected events derail your financial plan, a professional adviser to help you navigate the complex and sometimes frightening world of finances can be invaluable, Prinsloo says.