Here are five ways you can protect your finances during the COVID-19 pandemic

One could even argue that the pandemic has forced us to make behavioural changes that are good for us now and in the future. This is especially true when it comes to the habits that determine our financial wellness.

South Africa and the rest of the world continue to record many new COVID-19 infections every day. Around the world, vaccine programmes have kicked off or are due to kick off soon (as in South Africa)

Until we reach herd immunity and infection is no longer spreading in communities, wearing face masks, washing our hands with soap and water (or using hand sanitisers), and sticking to physical distancing guidelines will be our norm for some time to come. Spending time apart due to physical distancing also provides us with the opportunity to see things more clearly and make important changes. This includes reviewing and, where necessary, changing our approach to maintain our financial health.

It is vital that we keep focusing on the long-term essentials of budgeting and financial planning and not be tempted to make short-sighted decisions that could cause harm to our financial health.

What the research says

South African people have a poor saving and heavy spending culture. According to the Organisation for Economic Co-operation and Development (OECD), only 40% of South Africans were actively saving their money before the COVID-19 pandemic hit our shores. Sadly, that's well below the average of 64% (as published in the G20/OECD Report of Adult Financial Literacy in 2017). Also, surveys find that more than half of South Africans borrow money to meet their obligations.

The COVID-19 pandemic has brought financial distress to many households. A study by a credit reporting agency, TransUnion, suggests that the income earned by 83% of consumers was adversely affected by reduced working hours or job losses.

However, it is not too late to do something about this situation. Just as we have implemented personal safety measures to avoid getting infected with the COVID-19 virus, we can also put protections in place to shield us against financial hardships.

Here are five protective behaviours that can have a significant impact on our financial health at this time.

1. Spend less than you earn

Though an obvious way to protect our finances, for many of us this is easier said than done. If we have learnt anything from our national lockdown, it's that we can make do with less, especially when it comes to spending money on non-essential items.

During our level 5 national lockdown, we made do without luxuries like daily takeaway coffee and saved on this spend. Saving on what we would spend on a daily cup of coffee (say at R20 a day) results in an annual saving of R7 300!

If we can continue to spend carefully, we can enjoy immense savings down the line. In a 2018 Discovery research report called The Growing Insurance Gap for Millennials, it was found that approximately 50% of South Africans between the ages of 18 and 34 spent more on coffee than on any form of retirement savings.

2. Save regularly

Claire van Wyk, a financial adviser at Discovery, says those of her clients who have been saving religiously over the years are able to better weather the ongoing financial storms brought about by COVID-19. One such client is a doctor who, unlike many of his peers, can keep his practice going at a time when doctors' visits are at an all-time low, and many doctors have taken a massive financial knock.

"His accountant told him that he is one of the few who have sufficient financial reserves to make it through this challenging time," says Claire.

Many of her financially disciplined clients are low-income earners, which shows that financial health is not about salary levels and more about how people manage their money. Claire's advice is that people need to avoid lifestyle inflation by not adjusting their spending habits upwards as their income levels increase.

3. Insure for adverse events

South Africans must avoid cancelling health, short-term or life insurance during challenging financial periods. Adam Helper, a Discovery financial adviser, reminds us that severe life events are always potentially financially disastrous and we must not overlook this fact, especially during the COVID-19 crisis.

"More than ever, we must plan around events that could knock us out financially - such as an unexpected motor or household expenses, an untimely death, or a severe illness or disability," says Adam.

Claire has a client who cancelled her medical scheme cover recently. Unfortunately, the client had to undergo emergency surgery a few weeks later.

"This shows the importance of keeping the bigger picture in mind. Don't cut back on crucial expenses during tough times - and this includes our medical aid cover and other forms of protective cover," says Claire.

4. Invest for the long term

According to a 2016 Financial Services Board (FSB) study called Financial Literacy in South Africa, 86% of South Africans either have no investment plan or are not confident in their plan for retirement.

"Unfortunately, human beings are wired to believe that things will change and that they will have more time to save in future. But investing must be treated as a tax. It must be regarded as a non-negotiable," says Adam.

Investing differs from saving because the assets you buy (equities, bonds or property) make money for you. To be successful at investing, you need to start investing as early as possible to allow capital growth that will produce good returns.

If you've been putting off retirement savings, not all is lost. Recent research suggests that people can overcome late starts on investing by working to lower their current lifestyle needs rather than changing their anticipated future needs. In other words, ask yourself what lifestyle you can afford now, stick to it, and work to maintain it until and after you retire.

5. Facing our fears

The COVID-19 pandemic has brought elements of fear and uncertainty to our lives. During such times, we may be tempted to focus on getting through the present and lose sight of the future. But we need to confront our fears and not avoid them or succumb to panic. Likewise, avoiding taking care of our financial health will lead to further 'dis-ease' down the line.

Claire says she regularly deals with the phenomenon of hyperbolic discounting - given two similar rewards, people show a preference for one that arrives sooner rather than later, which could mean people are reluctant to look carefully at their long-term financial affairs. People tend to discount the value of the later reward, by a factor that increases with the length of the delay.

"However, COVID-19 has pushed us to the brink in many ways, and forced us to look carefully what we're doing with our money now and in the long-term," says Claire. "It's forced us to overcome our tendency to favour short-term rewards and look at our future financial health."

Coping with the overall societal and financial effect of the pandemic requires us to make sweeping adjustments to the way we behave, work, socialise, and manage our money. Now is the time to make sure these behavioural changes bring about a better future.

This article is meant only as information and should not be taken as financial advice. For tailored financial advice, please contact your financial adviser.