Prevention is better than cure
Managing your finances for the future
Financial planning has become a necessity when it comes to managing your finances. We are currently experiencing a lot of financial strain and when you do not have a plan of how you will effectively manage your finances, then you will end up spiraling down.
Financial planning is directing every cent that comes into your bank account, to where you want it to go. You plan with what you have. Which means that you do not wait until you have what you think will be ‘enough’ in your bank account, but you are getting into the habit of being in control of your finances now with what you have. So, it is safe to say that being financially savvy is not just for the financial gurus but for every individual, because who knows your plans and aspirations better than you do. Pre-Covid, consumers were already feeling the pinch with inflation and the repo rate. The recent repo rate increment led to more concern as it means that credit has become more expensive, and consumers are already using credit more for day-to-day expenses. Without a repayment plan on those expenditures, it may be detrimental to your finances and your credit life.
Every consumer should have the 4 P’s in place when doing their financial planning:
· Preparation – we ought to prepare for the inevitable. No one knows when their final day will be, however with all the possessions that we have acquired the least we could do is to put some ease in the minds of our loved ones. A lot of families have fought over the possessions of a deceased loved one and that happens mostly when there is no will in place. This is the final step of giving direction to your finances and possessions. If you have a financial advisor, then ask them to assist you in getting your will done. Some of the banks also assist their customers with their wills. Always approach a reputable institution to find out how you can go about getting your will done.
What is also avoidable is inflation and the rise of the repo rate. The price of bread today will not be the same in 10 years and when you look back 10 years ago, had you planned better, the change in our economy wouldn’t hit you as hard as it is right now. A big part of preparing for the rise of food prices and credit involves paying off current debt and having a savings account. This is ‘adulting’. You do not simply hope and pray but you also plan and prepare.
· Prevention – it has always been better to prevent than to cure and most of the time we are well informed of the preventative measures that are available to us. However, we choose to ignore the warnings until we must get the cure and at times, by the time the cure comes, it may be a little too late. The ‘YOLO (You Only Live Once)’ lifestyle will just have to take a step back until we have learned how to be disciplined in our spending habits. Drastic measures need to be taken to cure us of the over indebtedness disease. When we look at the Consumer Credit Market Report (CCMR) from the National Credit Regulator (NCR) for the first quarter, March 2022, it shows that there has been a decrease of 5.55% credit granted to consumers compared to the previous quarter. That does not mean that consumers are not applying for credit but that less consumers qualify for credit to be granted to them. Based on the report, it shows that the number of credit applications increased to 6.02% however the rejection rate is at 66.4%. This interprets that consumers are relying on credit; however, many do not qualify to be granted credit. This could be due to affordability or being negatively listed at the credit bureaux. From 26.48 million credit active consumers, only 16.44 million have been classified as in good standing, based on the NCR Credit Bureau Monitor (CBM). These numbers are a clear indication that we indeed need aid.
In our encounters with consumers during consumer awareness initiatives, we come across consumers who still do not know how to get their credit report from the credit bureaux. Consumers are still not in communication with their creditors when they find themselves in financial difficulties. Some consumers do not know what their rights and responsibilities are when it comes to their credit. The Credit Ombud and Microfinance South Africa (MFSA) have been running campaigns to bridge the gap between the credit provider and consumer. We believe that with transparency within the credit industry, we will be able to achieve a healthy credit life for consumers. Allow us to provide you with the first aid kit to prevent more damage being done to your financial health:
1. You start by managing your debt while you are still alive. Get your credit report from the major credit bureaux. If there outstanding debt, then plan to pay that debt off. There may be debt you may have forgotten, and your credit report is the best way to see what may still need your attention.
2. When your financial situation changes, contact all your creditors and make alternative payment arrangements with them. Do not wait until it is too late.
3. Ensure that all communication with your creditors is recorded and that you receive confirmation of your discussions.
4. Check whether you have credit life insurance.
5. Budgeting should be habitual.
· Provision – Ideally, we want to provide for our loved ones even after we have passed on. Although you will not be present but there are ways in which you can still provide from beyond the grave and that is to have life insurance. We understand that when it comes to financial planning, it can get a tad complicated as there is so much to do and certain matters you may not have the knowledge of how to get them done. Our advice is that you visit the Financial Planning Institute (FPI) website as they provide advice and guidance when it comes to financial planning. It is imperative to understand the terms and conditions when it comes to your insurance. Ask the difficult questions to the financial institution you choose to take the life insurance with. Always remember that you can never take chances when it comes to your money, so take your time before signing any agreement.
· Protection – What happens to your debt when you pass away? A question we should ask ourselves right now. If you have a spouse and children, ask yourself whether they would know what to do should you pass on right now. And if your answer is ‘no’, then it’s time that you start preparing them and although it may be a taboo and difficult dinner table conversation to have, but we have heard many stories of how families struggle after a death of a loved one. Start by making a list of all your assets, all your outstanding debt and then measure whether your assets would be enough to cover all your debt in the event where you may not have life insurance or credit life insurance. Having credit life insurance, and depending on the terms of that insurance, may be the biggest relief to your family. Life insurance should preferably be for your dependents and not to pay off outstanding debts, but it will be used to pay off your debt first before it can be distributed amongst your dependents if you have not paid up your debt or do not have credit life insurance.
Our current economic climate should be a wake-up call to us. We are reminded every day when you must buy milk that we cannot take for granted the importance of planning for our future and the future of our loved ones. We must do what we can now while alive. And it does not end with providing for them financially only, but to also give them the knowledge on how to plan for their future.
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MFSA Members have a national presence with outlets situated in rural, semi-urban, and urban areas. Their members service from and offer credit either via an online platform or from a physical store, located in shopping centers, or smaller retail centers for example. Whenever you require peace of mind about a credit provider or legal conduct in respect of the credit being offered to you, don’t hesitate to contact the MFSA via their website www.mfsa.net.
Consumers can contact the office of the Credit Ombud for FREE assistance if they experience any issues relating to credit agreements with non-bank credit providers such as clothing and furniture retailers as well as microfinanciers, fraudulent listings, emolument attachment orders (“garnishee orders”) or general complaints about their credit bureaux listings. The office can be contacted on 0861 66 28 37; on the website www.creditombud.org.za; email us at ombud@creditombud.org.za or send a SMS to 44786 and we will call you.