It has been a tough start to the year for South Africans, with President Cyril Ramaphosa recently announcing a national disaster due to the energy crisis.
The country has also been greylisted, a contraction in GDP was announced for the final quarter of 2023 recently, with many expecting the first quarter of this year to show another decline.
Consumers are also experiencing a cost-of-living crisis, sky-rocketing food and fuel prices.
Amid all these economic headwinds, the International Monetary Fund (IMF) in January sounded the alarm that a third of the world will be hit by a recession.
Also in January, analysts had predicted that Africa's most industrialized economy faces a 45% chance of slipping into recession this year as South Africa's electricity crisis deepened.
Citadel's Chief Economist, Maarten Ackerman agrees that the energy crisis may push SA into a technical recession.
“Everything is indicating that the first quarter of 2023 will also be negative because of the amount of load shedding we’re seeing at this point in time, coupled with the logistical issues faced in our rails and ports infrastructure. This will give us two consecutive negative quarters which, by definition, is a technical recession,” said Ackerman.
Janine Horn, Financial Adviser at Momentum said, “It is no secret that economic movements affect our household finances. Unfortunately, most of us were already feeling the pressure a long time ago, and a recession will only spill onto an already full plate.”
During a recession, Horn says the economy slows, businesses struggle, and livelihoods are put on the line due to liquidations and staff reductions.
Therefore, she says it is vital to prepare for a recession to safeguard your household finances.
Horn suggests making the smart money moves below to prepare for a recession:
Review and rework your budget
“Your budget is the backbone of your financial health, and it is vital to review your budget frequently,” Horn said.
She suggests carefully outlining your expenses versus your income and trying to reduce your costs.
“You may also need to get rid of non-essential items. Rework your budget to align with these changes.”
Bulk up your emergency fund
Bulking up your emergency savings fund is a great way to ensure you have money to cover emergencies or unexpected financial challenges.
A car tyre replacement is just one example of an unforeseen incident that may occur at any given time and requires some instant cash.
“Bulk up your emergency savings fund by applying the winning formula and making it practical,” advised Horn.
“If you haven't set up an emergency savings fund yet, don't panic. It is not too late. You do not have to save an excessive amount of money upfront. Look at your budget and cash flow and commit to saving some money regularly, or whenever you can, to create your emergency savings fund for a rainy day.”
Pay off high-interest debt
Organise your debts and start prioritising high-interest debts such as personal loans and credit cards.
Although it may not be possible to pay these off in record time, Horn advises trying your best to take intentional steps to pay them off. Paying off your high-interest debt will help you clear your financial slate.
“During difficult financial times, you may also get tempted to consider getting new debt or consulting dodgy financiers like loan sharks. However, this is likely to have a negative impact on your finances. Make sure you have plans in place that ensure you'll be able to pay off all your debt,” Horn said.
Stay invested
During unpredictable times, people are more likely to switch or pull out of their investments.
The most recent Momentum Investments Sci-Fi report revealed that 50% of investors who switched investments in 2021 did so because of market volatility.
Additional research has proven that it is best to stay put once you have invested.
“It is not advised to make decisions when you are panicking. Jumping the investment ship in pursuit of better returns will most likely lead to losing money. It is better to stay invested in gaining long-term results,” she said.
Although these are difficult financial times, Horn says it is not all doom and gloom. “Remember there are financial advisers available that can assist you with a financial plan to help you on your journey to success.”
Hayley Parry, Money Coach and Facilitator at 1Life’s Truth About Money told Business Report that there would be a lot more ‘belt-tightening’ needed when it comes to consumer finances as there was still some turbulence ahead.
“It feels like we are living inside a roller-coaster as South Africans, and our economy is reflecting the same. The contraction announced on Tuesday was far higher than what economists had predicted. This is not good news as they are already predicting that the current quarter that we are in is not looking good as well, thanks to the rolling blackouts that we as a country are facing,” Parry said.
“The reality is that this is impacting every aspect of our lives, including the country’s business sector. The cost of producing goods and services is going to increase as businesses have to compensate for not having electricity and pay more for coming up with their own solutions to deal with the energy crisis. Those costs are, unfortunately, being passed on to the consumers,” she said.
BUSINESS REPORT