are-you-financially-resilient Are you financially resilient?

It can be difficult to feel in control when markets falter and when uncertainty lies ahead. But sometimes it could be as simple as the mindset you apply – and taking some practical steps. While the challenges of a pandemic may include recession and nationwide lockdown, there is an opportunity to focus on long-term financial goals by learning coping skills and by changing our perspective.

Research by the Decision Lab and Capital One has highlighted that during stressful or challenging times, first focusing on the bigger picture (why we might do something versus how we might do it), is a form of psychological distancing that could help with healthier financial behaviour and better financial outcomes over the longer term. A systematic approach to tackling financial wellbeing is therefore required to help us with navigating finances during these times.

Here are important steps to take that could help with your finances and financial health:

Don’t ignore your psychological health – get help to manage and cope with stress, depression or anxiety

If not managed well, research shows that stress can affect financial decision-making and self-control, which can result in a vicious cycle and ultimately affect your financial health and outcomes. There are various ways to access help, ranging from employee assistance programmes, counselling benefits offered on some medical aid options, help from faith organisations, social support programmes and free support from organisations such as the South African Depression and Anxiety Group (SADAG) and the South African Federation for Mental Health.

Get a financial planning professional on your side to help with your financial health and long-term financial goals

A financial planning professional can help you to set and review your financial goals, which has been proven to alleviate financial stress. Aim to work on a balanced financial plan with your financial planner. The plan should take into account the following: insurance, which covers everything from unexpected events to material possessions; saving for things you can’t plan for and insure against; as well as future goals such as retirement and children’s education; and maintaining the ability to access affordable credit to buy appreciating assets.

Get on top of temporary relief options available to help you

Relief measures have been put in place by government, the Reserve Bank and the private sector (for example, temporary payment holidays, UIF COVID-19 benefits and interest rates cuts). It’s important to assess when to use some of the relief options as well as understand the cost and benefits to you over the short and long term.

Learn and adopt financial health habits

Just like we have to inculcate habits of washing hands regularly, wearing masks and social distancing, there are some financial habits we can work on to help with our financial health. These habits focus on things you can control in the context of your financial goals:

• Keep your goals, for example, saving for retirement, in focus by reviewing them regularly with your financial planner
• Set and manage a budget – this should include adopting frugal spending and avoiding impulsive spending (which can be stress-induced) to help take rands further and see if you can free up money for an emergency fund. Zone in on your bank statement and your shopping list to understand and manage your spending habits better.
• Manage debt wisely by paying the same amount as before the interest cuts, if you can, to accelerate the payment of your debt. Avoid using debt to pay for consumption.
• Avoid making financial decisions in moments of stress. A financial planner can help you to shift the focus for major decisions but also take a step away before making decisions if you are feeling stressed.

Practise psychological distancing by anchoring on the bigger picture: your financial goals

Another habit to adopt as highlighted in research by the Decision Lab, is psychological distancing, which has the potential to reverse the negative impact of stress on financial decisions. Psychological distancing refers to changing your perspective from the immediate circumstances to the longer term or bigger picture (why you are doing something). It is said that just focusing a few seconds on long-term financial goals can help improve financial health and outcomes.

For example, focus on the things you can do when the pandemic is over and save towards these. Interestingly, psychological distancing can also apply when we focus on helping others and removing the focus from our own challenges.

People should not have to face these challenging times alone and so we have created a resource centre to help South Africans navigate their finances. Together with our financial planners, we aim to provide support and help build financial resilience into the future.