As the year hurtles towards its close, signs of the festive season are emerging – Christmas decorations adorning storefronts, and the cheerful melodies of holiday tunes resonating through retail spaces.
Despite the hustle and bustle of the approaching “silly season”, the end of the year is a good time to reflect on the financial journey of the past year and extract some valuable lessons for the year ahead.
Here are some of the hard real-life situations that Fiscal clients faced over the past 12 months and what these can teach us all.
1. Plan for the unexpected
There are three certainties in life: death, taxes and Murphy’s law hitting you at the most inopportune moments.
One of Fiscal’s clients recently moved into a new property. Just a month or so after settling in, the infamous Cape Town winter rain revealed a substantial leak in the ceiling. Fortunately, she had short-term insurance and an emergency fund to cover the excess on the insurance, demonstrating the wisdom of preparing for unforeseen circumstances.
Another client’s company went through restructuring which resulted in his role being declared redundant. Although this was an unexpected and stressful period, he was financially resilient. He had diligently maintained an emergency fund equivalent to six months’ worth of living expenses. This gave him a financial safety net while he looked for a new job. Read more: How do I set up an emergency fund?
2. Ignore unqualified social media advice
The South African Reserve Bank dramatically raised interest rates over the past three years – from a low of 7% in 2020, to the current level of 11.75%.
A client of ours bought a property in 2020 after being convinced by social media influencers that it was a buyer’s market.
The woman found her dream property and was approved for a R2 million bond at the prime interest rate. In 2020, her monthly repayments were R15 505. Fast forward to 2023 and numerous rate hikes later, her repayments have increased to R21 600 (an increase of almost 39%). This has placed significant pressure on her budget, as she now has approximately R6 100 less to invest and spend.
Social media influencers are not always qualified to give advice and the lesson is you need to do your due diligence and be sure you get financial advice from someone who is licensed to provide that advice. Read more: Why social media is not the place for solid financial advice. and Homeowners need to be prepared for interest rate hikes and other costs.
3. Beware of high fees
Being mindful of the fees associated with your investments is crucial for several reasons. First and foremost, fees can significantly impact the overall returns on your investment. Even seemingly small fees, when compounded over time, can erode a substantial portion of your gains.
A new client approached us for advice on an existing retirement annuity (RA) he had with a life insurance company. The fees charged on this investment were staggering – an effective annual cost of 10% was charged. This meant his investment had to return 10% a year, just to break even. Anything less than a 10% return would mean his investment value would decrease. Luckily, there are more cost-effective and transparent RAs available. Switching to one of these RAs saved the client tens of thousands of rands over the last couple of months (and will continue to benefit him over the long term).
Knowing what the fees are and how they impact your investment empowers you to compare different investment options effectively.
As we embark on a new year, these lessons serve as a valuable guide, encouraging us to approach our financial endeavours with prudence, diligence and an ongoing commitment to financial literacy. By learning from the experiences shared, we can navigate the complexities of the financial landscape with greater confidence and resilience.
This article was written by Johann Rossouw and was published by Smart About Money. It can found here: