Right now, in the darkest part of this pandemic globally, and most certainly locally, everyone will be watching their money. There are some easy wins when it comes to saving, but there are other areas, usually grudge purchases, that might look like an easy win to get rid of but could have long term ramifications that you can’t undo.
Long term Implications of the pandemic on your finances and career:
We don’t yet know enough about Covid-19 (the disease caused by the coronavirus called SARS-COV-2) to know with any certainty any of the following:
- If a vaccine will infer long-term immunity (or must be re-administered annually like the flu) or twice a year (like Cholera). Even if a vaccine is available, there are early indications that as much as 30% of the population won’t take it. If the pandemic has already impacted on your career – what if this doesn’t ‘end’ and your industry is opened and closed continually? I think we’re all going to learn to live with this virus, and even high risk industries like gyms, concerts, sporting events will come back – but maybe in a different way. Think about diversifying now if your career was impacted by this pandemic.
- If catching the Covid19 infers immunity, and if so, for how long. Take the ‘common cold’ for example, this is caused by a host of different viruses, and 20% of them by a Coronavirus. We usually do not build up immunity to these specific viruses, but how we are affected is dependent on our overall immune system. The immunity from catching the disease or a vaccination will impact on global travel and tourism as some countries seek to avoid re-contaminating their population. We’re already seeing widespread bankruptcies and business rescue applications in the aviation and hospitality sector and right now, there is no clear end in sight.
- While comorbidities might predispose you to having a serious or deadly reaction to the virus, in 50% of the cases this isn’t so. Nobody can say with any certainty that they are immune or what reaction they will have to the virus. This is not the time to get complacent or gat vol of the restrictions.
- Even if you get Covid19 mildly, the effects can linger for months, boomeranging back every couple of weeks. How would this effect your income?
- There is a growing body of evidence that even if you survive this disease, as 99% of people do, many survivors are reporting long term damage to heart, lungs, brain or kidneys. This raises the thorny issue of your ‘insurability’ should you have tested positive for the disease. Insurability is the ability to buy life insurance There are a number of ‘whole body’ diseases that will severely impact the kind of ‘terms’ a life insurer will give you. HIV is the most notable, but as treatment has become better, the stance has softened from outright decline (no cover at all) to acceptance with a ‘loading’ (pay a higher premium than normal) or exclusion (for a specific condition). Diabetes, cancer and rheumatoid arthritis (to name a few) also usually result in some sort of ‘penalty’. You can bet that the life insurers are already looking at how to handle clients that have recovered from Covid19, and in the early days they will err on the side of caution. If you have recovered from Covid19, please be very careful when changing your life policy and never cancel an old policy until a new one (that you’re happy with) is in place.
- The Pandemic has accelerated some significant trends where change was already taking place, significantly work-from-home and less of a need for large (expensive) corporate headquarters. The other change is from full time employees to freelancing. There are threats and opportunities in both trends. Firstly, Corporate Real Estate is going to drop in demand, and the vacancies and rentals along with it. By moving staff onto Freelance, the company will save on benefits, space and have more hiring (and firing) capability. Staff will be expected to sort out their own life cover and pension contributions but there should be more upside potential, tax restructuring, savings on commuting etc. In some sectors you may need a much more radical rethink of your career.
Lower interest rates: The drop in interest rates of 275 basis points, with REPO from 6,5% to 3.75% (and maybe more to come) should have made your bond and all other debt cheaper. If you had a R1m bond, the interest portion of you bond should have dropped by about R2,500 a month (capital repayment stays the same). Don’t be surprised if your credit card is still charging an extortionate rate of over 18%. If you don’t already pay off your credit card 100% before the due date and so are charged no interest, now is the time to do it. I am often asked “Shouldn’t I rather build up your emergency fund?” Until you have no ‘expensive debt’ like a credit card or personal loan, putting money into that account is in effect ‘earning you’ (okay, it’s actually ‘saving you’ but it’s all money at the end of the day) 18%+. You can’t get that rate of return anywhere. Pay-down the credit card monthly and if you hit a bad spot before it’s paid off, the card can become your ‘emergency fund’. Ideally, you shouldn’t use the card at all while you are doing this, but instead revert to using cash or a debit card. (Cash is pretty dirty and the combination of cotton (cash is not made from paper) and natural oils etc from thousands of hands – not something you want to handle too much right now). If you have taken a ‘deal’ from the banks to defer any debt, please read the small print carefully. Some of these deals are only for 3 months and may already be expiring so you might have to renegotiate. Lower interest rates are of course a double edged sword, with anyone depending on fixed income from interest having to contend with a much lower income (or having to dip into their capital).
Short term insurance: When we were all staying home, the short term insurers had it easy (and might have thrown you a few crumbs to assuage their conscience) and are now fighting tooth and nail to stop paying out ‘business interruption’ cover, which in all fairness could cripple some of them. They are fighting it in the courts, and expect that to be drawn out for months, if not years. This might be a good time to get a competitive quote, and to really decide if you need all that cover (full contents insurance for example). Sometimes the cheapest way to insure something is with the provider. My DSTV unit has been fried by lightening several times (despite surge protectors) because the lightening charge travels down the aerial and enters via a USB port – DSTV now insure my unit and I don’t have to have full household contents insurance to do it.
Life policies: These are probably the ultimate grudge purchase, and the good news is you can be selective on what you cover – and it need not be for the whole of your life. When you reach that point in your life where your retirement savings are optimised, debt is zero and your liabilities are covered by your “pension” then disability cover (as an income – a lumpsum on permanent disability will pay for unforeseen expenses like modifying a house or car) and life cover become a ‘nice-to’ rather than a ‘need-to’ have. Dread disease cover is more nuanced and may require ‘lump sums’ for out of pocket expenses. I rather fear that covid-19 will be used as an excuse to fast-track the NHI , where medical aids are banned, and you have no control over your service provider. (This is not an exaggeration. In its current form, private health care will be all but prohibited with doctors forced to work for the government, at their salary scale or not get a license to practice at all). In this instance a lumpsum to be able to afford to leave the country to be treated will be valuable, even in retirement when you’re on a fixed income and may not have planned for this sort of expense (which could run into the hundreds of thousands). Because of the ‘insurability’ issue I raised above, if you’ve been putting off taking out some sort of risk cover because you NEED it, do something about it now. Make sure that you advisor or broker clearly understands your needs and doesn’t just tailor the cover to what they think you can afford. What they should do is quote you on what you need, and only after that on what you can afford (with a plan for getting from one to the other). Not all providers are the created equal and the older doesn’t always mean better (in this case, obviously. Cheese, Wine and Women excluded). I have written a number of blogs on this, so I am not going to bore you all again, this is just to give you a heads-up to do your research.
Medical aid: With a few exceptions, you can only make plan changes at the end of every year. Medical aid premiums have increased at around 9-10% per annum for over a decade, making comprehensive cover much less affordable. Most medical aids have special covid-19 plans even if you’re just on a hospital plan. Moving medical aids is fraught with issues and could leave you effectively uninsured for months. Now is not the time to make big changes.