Money Smarts: How to beat the recession

If you’re worried about the state of your finances as South Africa tilts into another full-blown recession, you’re not alone. Many thousands of South Africans are now feeling uncertain about their financial futures, especially following the nation’s credit rating downgrade to junk status in April 2017 and in light of the ongoing political unrest.

On 6^th June 2017, it was announced that South Africa had slid into yet another economic recession. The trigger? A gross domestic product (GDP) drop of 0.3% in Q4 2016, followed by a further 0.7% drop in GDP over Q1 2017. These two consecutive quarters of economic decline amount to the technical definition of recession.

With unemployment at 27%, this fresh recession is a major cause for concern for many everyday South Africans. A strong economy is needed to create new jobs and solve the country’s unemployment problem, but economic decline is a clear demonstration that the economy is not where it needs to be. In fact, a weakening economy could mean rising unemployment and fewer job opportunities for South Africans.

But redundancies and joblessness aren’t the only effects of recession which could affect South African household finances. Costs of living are liable to rise during recession, while the weak state of South Africa’s economy has also weakened the value of the Rand, causing the cost of imported goods to rise.

So how can everyday South Africans take steps to weather the storm?

1. Do your homework

Survey after survey has revealed that financial education in South Africa is virtually non-existent, especially for low income households. This means that South African financial literacy is poor, virtually across the board. Without a basic understanding of how to run household finances responsibly, taking steps to recession-proof your money will prove tough.

There are a number of sources to help you learn more about personal money management. Wonga.co.za‘s Money Academy and Alison.com are good places to start, if you’re learning online.

2. Start saving now

It’s very difficult to predict what markets will do next and what the economy has in store, which is why saving money and creating an emergency fund is so important. If a member of your household is made redundant thanks to the recession, you could be faced with a much lower income and a difficult jobs market to contend with. A financial “safety blanket” is therefore essential.

3. Live below your means

You may have fallen head over heels with a gorgeous house or a flashy car, but could you afford to maintain and repay them if you found yourself jobless for two months? If the answer is no, it may be time to downsize to something more affordable.

4. Invest in your skills

Saving is crucial during a recession, but if you do make one investment, make sure it’s in yourself. Diminishing job opportunities can make competition for roles ferocious, so invest in classes and courses that make you stand out from the crowd.

Have you noticed a trend toward saving and budgeting emerging in recent months? Has the current political climate changed how you think about your finances? Have your say below.