The nationwide lockdown to curb the spread of Covid-19 has had a crippling effect on the South African economy and has taken a toll on the personal finance of many, notes Chris Eddy, head of investments at 10X Investments.
However, those who are lucky enough to continue to earn money while working from home could well be accumulating a little pot of additional savings. These savings may encourage new budgeting habits for when we emerge from lockdown, he said.
With lifestyles dramatically curtailed by lockdown, consumers are potentially saving thousands of rand every month. “Excursions and outings are prohibited, and even travel to and from the office is banned for most of us. Being confined to our homes means saving on public transport costs, or petrol and parking, as well as lunches and, maybe, a drink or two after work.
“That’s not to mention shopping trips, theatre, dinners out and the many other spending black holes in our modern lives where a lot of time is spent away from the more frugal comforts of home,” Eddy said.
The money saved by staying at home together with restrictions on buying numerous “non-essential” goods, and the reduction in the repo rate by 2% have the potential to turn this crisis into an opportunity for some.
“By analysing how and where your spending has changed over the past six weeks, you might find that you are comfortable with reducing your spending in the long run, allowing you to allocate additional funds to existing savings, or perhaps start a retirement savings plan for the first time,” Eddy said.
‘Redistribute’ your home loan savings
The repo rate has fallen twice in as many months, and could fall again before the end of the week, providing much-needed relief for mortgage holders.
The reduction in the repo rate by 1% in March and by a further 1% in April, brings the prime lending rate down to 7.75%.
“A person with an outstanding bond of R2,000,000 could potentially save more than R2,500 a month without feeling any pain.
“In addition to this tidy sum being invested to grow over the long-term, if it is saved in a retirement annuity, they can expect tax relief on the money too. Money that is saved toward retirement reduces, within certain limits, the amount of tax you pay, with the government returning the tax paid on every rand you put away for retirement,” said Eddy.
He said that for some, the nationwide lockdown has created an opportunity to capitalise on a unique savings scenario, and hopefully create some good investment habits to take into our post-lockdown life.