When Money is Tight, a Financial Plan Becomes Even More Important

It is precisely in these circumstances that financial planning becomes even more important, says Thys van Zyl, CEO of Everest Advisory Services, on World Financial Planning Day (7 October). “There is sometimes a misconception that financial planning is something you only need once you have enough money to invest, but the opposite is often true. When your budget is under pressure and there is little room for error, making sound financial decisions becomes even more important.”

Consumers are this week once again confronting the reality of rising living costs, with fuel prices reaching record highs after petrol increased by more than R3 per litre and diesel prices also rose sharply. The South African Reserve Bank also raised the repo rate by 25 basis points to 7.25% in September amid mounting inflationary pressures and a challenging international economic environment.

Several medical schemes have meanwhile started announcing their proposed contribution increases for 2027, with weighted average increases of between roughly 7% and 9%, well above the Council for Medical Schemes’
recommended anchor of 3.8% plus reasonable utilisation. The increases remain subject to approval by the Council for Medical Schemes. Van Zyl says these increases illustrate how households’ disposable income is increasingly being divided among essential expenses. “For many people, it is no longer a question of where else they can cut back. They have already made those cuts. The challenge is rather how to manage the money that is available in such a way that today’s financial pressure does not become a bigger financial problem tomorrow.”

According to Van Zyl, financial planning during difficult economic times does not necessarily mean that households need to find more money to save or invest. Instead, it starts with a thorough understanding of where their money is going, which expenses are essential, which debts need to be prioritised, and which forms of financial protection should not be sacrificed without careful consideration.

“When people come under financial pressure, the natural reaction is to start cutting costs wherever possible. But not every saving is a saving in the long run. Cancelling important insurance or medical cover simply because of its immediate cost, for example, could expose a household to much greater financial risk later.”

“The same applies to retirement savings. When cash flow is under pressure, it can be tempting to put long-term goals aside first. Sometimes adjustments are indeed necessary, but they should form part of a broader plan rather than being a panic reaction.”

Van Zyl says a sound financial plan should therefore not only work during favourable economic conditions. It should also make provision for interest rate increases, sharp price hikes, unexpected medical expenses, job losses or other changes to a household’s income.

International developments make the need for this approach even greater. In its latest interest rate decision, the Reserve Bank warned that the global economy is being affected by geopolitical conflict and disruptions to energy and trade markets. Higher oil prices and international uncertainty, in turn, create inflationary pressures that can directly affect South African households.

“A household cannot control the oil price, the rand, a war or the next interest rate decision,” says Van Zyl. “What you can control, however, is how well prepared your own finances are when these events hit your pocket. That is where financial planning shows its value.”
He believes households should regularly review four areas in particular: their monthly budget and cash flow; the cost and structure of their debt; their emergency fund and risk cover; and whether their long-term savings and retirement plans remain achievable.

“The aim is not necessarily to keep a financial plan unchanged when circumstances change, but rather to adjust it in good time. Financial planning is not about predicting the future perfectly. Nobody can do that. It is about structuring your finances in such a way that one unexpected event does not derail everything you have built up over the years.”

“The best time to test your financial plan is before you are forced to do so. When the cost of living rises, a plan is not a luxury. It is the tool that helps you decide what comes first, what can wait, where you can make adjustments and what you need to protect at all costs. You do not have to control everything happening around you to take greater control of your financial future.”