Get yourself firmly on the road to financial resilience this Woman's Month
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By Paula Berrow
This is particularly true for women, who have been hardest hit by the complex Covid-19 crisis. Two of the three million South Africans who lost their jobs in February-April 2020 were women, many of whom head up single-parent homes. Sixty percent of women with children receive no support from the fathers of their children, as compared with 47% in 2019.
One can rail against the harshness of this reality, which is not unique to South Africa, but at a practical level, it’s clear that women need to take action to improve their financial resilience. Perhaps the best gift one can give oneself this Woman’s Month is to take decisive steps to do so and, perhaps even more important, make sure that young girls and women in one’s orbit learn the lesson early on.
Here are some of the best ways to start becoming financially resilient, and what you should be teaching the next generation of girls and young women:
- Start saving early. The sooner you start, the sooner you start to benefit from the power of compounding. Try and save a regular percentage of your income – 15% to 30% is the usual range – and also bank any windfalls, such as an inheritance or a tax refund.
- Get your head right. It’s important to remind yourself that saving is not a deprivation but an investment in your own future. Younger people need to have this lesson driven home, particularly in our culture of instant gratification.
- Consolidate debt. Debt is a legitimate financial tool that, if used wisely, can help a woman acquire big assets such as property. However, some forms of debt carry high interest rates. Many smart women use their access bonds cleverly to consolidate other debt and thus pay less interest. Going into debt to buy unnecessary or wasting assets should be avoided – think of it as stealing from your future self.
Consider a side hustle. Up to 27% of South Africans have a second string to their financial bows. It may be a bridge too far for a hard-pressed single mum, but if possible, finding a way to supplement one’s income makes it easier to save.
Become an investment maven. It’s no use saving and then failing to nurture the growth of your investments as much as possible. Like everything else in life, investment advisors and investment products are not equal. Ask around and find an advisor you trust and can relate to – and then make sure you understand what types of products are out there, and how they could fit into your plan.
Two key concepts here are risk (and its flipside reward) and cost. As regards the former, the rule of thumb is that the higher the returns, the greater the risk. Get your portfolio’s risk profile aligned to where you are in your journey.
Cost is the big one that the investment industry tends to keep under wraps. It’s an open secret that costs will eat into your gains, and they are often carefully hidden. Advisors levy a percentage, so do fund managers – make sure all the costs are transparent so you can get the best deal.
Mitigate your risks. Insurance of various kinds exists to protect against the unexpected. Medical cover is a must, particularly as the state health system becomes less reliable; income protection is advisable for women who are breadwinners. Then look at insuring vehicles, property and so on. Insurance is often treated as a grudge purchase – until it’s required.
Once you’ve got your head around these ideas, start putting them into practice even if you can’t do everything – even a small cushion is better than none at all. And then make sure all the young women in your circle get the good news as well.
Paula Berrow is the Head Of Growth at GCI Wealth