By  Suzean Haumann – Brenthurst Wealth

Navigating this new state of play requires careful management of personal finances.

2021 ended with the highest inflation rate in almost five years, a higher interest rate, record-high petrol prices, a new variant of the coronavirus and, of course, regular bouts of load shedding. The after-effects of upheaval since lockdowns were introduced (in response to the outbreak of the Covid-19 pandemic) will linger for months, if not years.

Life is returning to a different kind of normal as people started travelling more this past December, going out to restaurants, returning to offices in January, and many countries lifted travel restrictions. Navigating this new state of play requires careful management of personal finances.

1. Just start saving with a debit order

Financial advisors always recommend to investors to start saving and investing from the moment they start earning an income. This requires discipline and focus. Some managed to do just that, but not everyone. However, it is never too late to start. It can be small, but whatever the amount is, get going. Then automate it. Sign a debit order or set up an automated payment on the same date of every month and, more importantly, set it to increase annually. Review various options like tax-free savings accounts, unit trusts or even a call account when starting out. As the amount saved grows, it can be moved to more aggressive investment options with higher risk, but also higher rewards over the long term.

2. Expect emergencies and be prepared

The true value of having an emergency fund was finally realised over the last two years, and those who did not have such funds started adjusting their spending habits to set up such a fund. Saving for emergencies must be in an investment or savings product that allows for easy withdrawals. Saving up to six months of monthly income is ideal, but savings equalling just two months will make a difference when the unexpected happens.

3. Know your budget

Setting a budget is the foundation of a sound financial plan. By keeping track of expenses, you can identify what you spend money on and where changes can be made. Drinking two cappuccinos per week at your favourite coffee shop (at R34 each for a regular size), adds up to R3 536 per year. As it is a small expense, most of us do not give it a second thought. Subscriptions not fully utilised can also add up. Paying a monthly gym fee but only going once a month is not wise. Subscribing to a magazine and not reading it is throwing valuable money in the water. It requires discipline to avoid instant gratification, but the long-term rewards will be great. In short, the frugal life is the safest road to wealth creation. To make it easy, look for a mobile app (e.g., Money Monitor or Wally) to track your spending habits.

4. Understand diversification and why asset class selection matters

Diversification is crucial for investment success. Markets all go through cycles. For instance, a sector might perform well – as evident in the commodities boom late last year – or a region (e.g., the US) or an industry (technology has been dominant for years). Selecting asset classes – stocks, bonds, cash, property, etc. – is a subset of diversification and combined these two factors drive investment success. This ensures that investment values are protected when one asset class, sector or region is underperforming while others deliver strong returns.

5. Consult a professional advisor

Every investor’s situation is different. Factors that must be considered when devising a plan are your personal circumstances, risk tolerance, investment goals and time horizon (especially important when saving for retirement), not to mention understanding economic factors, making sense of market fluctuations and which asset classes would suit you best. A professional advisor will take the time to understand your specific requirements and create a plan best suited to you.

The impact of the Covid-19 pandemic on household finances and investors around the world created challenges and, in some instances, caused panic. It is especially of value to have a financial advisor to guide you during tough times. Beyond guidance, international research by companies like Vanguard has shown that investors who use a professional advisor achieve better returns over time than investors managing their financial plans themselves.