With the year coming to an end, and the political and socio-economic issues currently facing our country, you could be stressing about your lifestyle and wealth.
The good news is that if you reach out to your Financial Adviser, they will be able to give you tangible advice that will help you manage your money correctly, so you can maintain your lifestyle and achieve your goals, says Liberty Financial Adviser, Kobus Kleyn. Irrespective, here's what you need to know:
1. Full junk status by early 2018 a real possibility
If there is no political stability and a more robust fiscal policy, this could lead to another downgrading from the ratings agencies who have been watching us closely since 2016.
If ratings agencies reduce our investment status to junk, this will impact consumers who are already in a negative state of debt to income. Debt will become more expensive very quickly and this is why consumers must include contingency planning in their monthly budget.
Junk status will also impact the markets which will have a direct negative impact on dividend income, interest bearing income, annuity income, voluntary capital income and most incomes related to market linked portfolios.
2. SARS, VAT and Government increases
Tax increases from SARS, Government and even VAT will have an impact on all income earners. Those who are over indebted and over geared will immediately feel the pain. The possibility of increases occurring is gaining momentum, especially when you consider that government is facing a R18 billion budget deficit - and there in need of another R50 billion to bailout some State Owned Enterprises (SOEs). The only logical place for government to find this bailout money is from tax payers.
3. Possible interest rate changes in a volatile economy
We got a repo rate cut in July. However, it doesn't seem like the political and investment landscapes are about to settle down and this could mean that consumers can expect the interest rates to start going up again in late 2018. For now, due to some good CPI stats, we can expect maybe another 1 or 2 rate reductions by April 2018.
Rising interest rates on the other hand would have a financial risk on consumers with a high debt ratio and where they could default on major immovable and movable assets while damaging their credit ratings. However reducing interest rates is an opportunity for the consumer to mitigate future risk on rate increases, if they use the additional disposable income to reduce debt.
A comprehensive solution to managing these economic risks
Financial Advisers have a key role to play in assisting you to prioritise spending, creating peace of mind and instilling a sense of financial security. An adviser can also ensure that adequate measures are put in place for the four essential pillars of risk – Life Protection, Loss of Income, Lifestyle Protection and Policy Protection.
For example, Liberty's Lifestyle Protector is a comprehensive risk vehicle which allows you to take out a basic plan to cover immediate needs and then add onto it through ancillary and joint spouse and children benefits within one policy, with one policy fee and one debit order. Benefits can be removed or added at any given time which allows for flexibility.
Lifestyle Protector allows for absolute flexibility for the whole family within affordability to control your financial budgets. What’s more, Liberty provides a financial buffer to prevent policy lapses when it is most crucial to maintain cover.
Under volatile economic situations, Lifestyle Protector also delivers financial protection. Liberty recognises that under these economic conditions, you may find it difficult to meet your monthly financial responsibilities.
Have the conversations with your Financial Adviser and make sure that your income and wealth are adequately protected. Financial Advisers must drive this conversation with you and ensure that you have the right level of cover in place.
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