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Johannesburg - Kerry King, advisory partner and wealth management specialist at Citadel, explores the importance for consumers and businesses to make provisions and adjustments to ensure survival in 2023.
King advises South Africans to be careful with debt as the world faces a possible recession this year.
According to the Citadel Asset Management team, the likelihood of a global recession this year has increased significantly. With inflation already shooting up and interest rates sure to be hiked again, the cost of living will continue to rise.
King explains four crucial personal finance survival tactics to stick to in 2023, regardless of whether you have savings, assets, and/or cash flow.
Remain as financially liquid as possible.
She advises people not to have all their money tied up in illiquid assets.
"There should be some accessible savings available that could be accessed in case of emergencies. If you can manage it, try to set aside at least twice your monthly expenses in savings for emergency back-up. This will also help should you find yourself unemployed for a period of time," she said.
Children learn their spending patterns from their parents, so it is also wise to teach your children as early as possible to save up for emergency funds.
Do not take on new debt if you can avoid it.
"Major global financial markets such as the US and UK are expecting further interest rate hikes before inflation starts to moderate sufficiently, and South Africa will also experience this. This means the cost of borrowing will increase, and bond repayments that are affordable today might become less so in the next 12 months. The cost of living is also likely to rise sharply over the next year or two, so don’t get into debt for luxuries you don’t need. It is challenging to predict how long interest rates will remain high, and this may mean you will have to tap into your emergency funds," said King.
Pay off your debt as fast as possible.
Interest rate hikes by the Federal Reserve are typically echoed by the South African Reserve Bank within three to six months, and these have a general knock-on effect on the South African economy.
Echoing the rise in lending rates in other countries, including the doubling of mortgage rates in the US over the past year, she says South Africa has already seen the prime lending rate increase from 7.5% to 10.5% over the past few months.
With the prospect that interest rates could be much higher in a year or two, it is a good idea to prioritise and accelerate your debt repayments.
Stick to your long-term investment plan.
King says people should not be frightened by short-term noise.
"Stick to your long-term investment strategy by riding out short-term crises. Hold on to your investments, assets, and savings as much as you can. The financial markets go through constant and continuous up-and-down cycles, so, as the saying goes, keep calm and carry on. If you keep a cool head about your investments today, your future self will thank you," she says.
The Star
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