The picture painted by South African Finance Minister Malusi Gigaba’s Medium-Term Budget Speech was definitely not a rosy one.
The lacklustre growth figures and debt levels will have an impact on clients’ financial wellbeing, including savings and investments, says Elize Botha, Old Mutual Unit Trusts Managing Director.
“Against the backdrop of 3.6% global growth in 2017, Minister Gigaba highlighted that the South African economic growth projection is falling short of the expected 1.3% GDP, revising this projection down to 0.7% for 2017. Furthermore, tax revenue is estimated to fall short by a mammoth ZAR 50.8 billion.”
With gross national debt forecast to be at 61% of GDP by 2022, Botha says that by 2020/2021 the projection is that 15% of the main budget revenue will be spent servicing debt.
“Minister Gigaba highlighted some high level plans in an attempt to turn this around, such as managing government expenditure and increasing our competitiveness, but failed to provide much comfort on how this could be achieved.”
But what does all this mean for the average South African?
According to Botha, all of the indicators highlight that the average South African consumer needs to prepare themselves for harder times.
“The per capita income is down, the economy is not growing, poverty percentages are concerning and business confidence needs to be restored. All of these elements place an ever-increasing burden on South African households.”
She points to the 2017 Old Mutual Savings and Investment Monitor, which shows that 62% of household income is spent on living expenses, 16% servicing debt, and only 15% towards savings.
“If harder times await, a nest egg or emergency vehicle is of utmost importance.”
Botha offers the following tips for South Africans trying to stretch their rands and improve their lives:
- Cut out unnecessary spending on any luxury items (cell phones, data, satellite television, takeaways, luxury foods, alcohol). It is essential to bring the living expenses portion of your income down. This will enable you to provide some breathing space and capacity for additional cash to invest.
- Only 2% of people who invest do so in an equity-based vehicle, such as a unit trust. It is hard to outpace inflation in the medium to long term if you are not including growth assets in your portfolio. From as little as ZAR500 per month you can invest in a flexible, easily accessible, fully liquid portfolio, which means you can have access to this money should you require it in an emergency. However, it is recommended that once you are invested, stay invested despite market and economic noise, as this is when you build real wealth.
- A staggering 40% of people have no formal retirement savings. Start today – the earlier you start, the more promising the outcome will be.
- Become a ‘slasher’ and generate extra income (if possible!). In the Monitor, 37% of the respondents indicated that they have more than one job in order to cater for the increased economic pressure. If this is an option for you, it can enhance your capacity to cater for the needs and dreams of you and your family.
Despite the economic environment showing signs of pressure and the impact thereof on the average South African, Botha concludes that there are still ways for South Africans to cater for their financial well-being.
“It is never too late to save. Saving for your financial dreams and aspirations is not impossible and it’s not all doom and gloom if you start somewhere, and soon.”