COVID-19 has not only changed the way we work and function in our everyday lives. It has impacted how we manage and support our finances. Read further to understand how you can stay on top of your financial situation.
The economic impact of COVID-19
The repercussions of the pandemic are felt and will continue to be felt in the coming years across multiple industries in the world. The economy is facing a major setback due to the effects of the lockdown where international trade had been disrupted, creating a chain reaction in all economic activities. This means that because fewer goods are being sold, there are fewer purchases, which result in lower business profits, limiting income to hire and pay employees.
This temporary or permanent job-loss has a direct impact on household incomes across the nation, along with more people competing for fewer lower-wage jobs. Worldwide cancellation of events does not only affect the employees of the venues or events but impact hotel, airline, and retail companies as well. The loss of paid time off during quarantines is also a concern for those who fall ill with COVID-19.
GDP (Gross Domestic Product) is the value of goods and services produced during a year and is an indicator of the economic performance of a country. South Africa’s GDP is said to take at least 5 years to recover from a decrease of 5.1% to 7.9% in 2020. This decline results in setbacks in poverty, unemployment, and economic inequality according to a UNDP study. COVID-19 has particularly impacted those that are already affected by inequalities, living below and on the poverty line.
The UNDP study highlighted that COVID-19 will lead to an increase in households living below the poverty line, moving from the lower-middle-class. Over half of the countries households have moved from permanent jobs to informal ones and are likely to fall below the poverty line. To avoid this, the Government needs to take greater care to support the vulnerable middle class.
Despite these negative repercussions of COVID-19, some sectors and industries have grown. These include essential services such as the health sector, food, agriculture, financial and communication sectors. This is due to the increase in jobs made necessary for food and health delivery, and online communication services.
How to be financially responsible during a pandemic
It is even more important to manage and spend our finances wisely to avoid falling into debt. Cutting costs where you can and having a sound financial plan can help you ensure that you remain afloat financially. Here are a few more tips on how to navigate COVID19 and protect your financial future.
- Know your credit score - This is useful when applying for loans or to manage your credit.
- Don’t fall back on your debt repayments - Cutback where you can to stay on top of your monthly repayments.
- Only take payment holidays when necessary - These usually can result in a higher cost of credit, so be sure when you actually need them.
- Budget, budget, budget - Track your spending and avoid using a credit card for purchases until you can fully manage the repayments.
- Cutback on expenses - Evaluate your top 3 expenses and see where you can minimise your spending. Avoid eating out or purchasing material items you don’t actually need.
- Use the 85% method - When you’re aiming to improve a certain area of your finances, focus on getting 85% of the way there. Give yourself a goal for each month, whether it be to reduce an expense or save.
- Calculate your one-year emergency fund - Where you can start putting away funds to cover vital essentials for a year. This will provide a defense against possible future financial setbacks.
- Automate your savings - Set up an automatic payment system to make monthly contributions to your savings or investment accounts. Let your money grow by forgetting about it.
The COVID-19 pandemic has impacted the financial landscape in many ways, causing uncertainties and an unstable income source for many. Support your finances by applying for the appropriate loans when you need them, staying on time with your repayments and reviewing your spending. Being financially smart now, however difficult may be, will only yield positive results for a more secure financial future.