How has the Covid-19 pandemic changed the way I need to BUDGET?

The Covid-19 pandemic and the subsequent lockdown have changed our world completely.  For most of us our monthly income and expenses look significantly different now compared to January 2020.

If your income and expense structures change significantly you should pay close attention to both your budget and spending habits.  In the old world we advised that you review your budget every six months and compare your actual numbers against your budget monthly.

In the new world, however, we advise that you review your budget monthly.  You should compare your expenses to your budget twice a month. This more conservative approach should allow successful budgeting for essentials.

You might be spending much less on fuel, restaurant meals, entertainment, and outdoor activities, however, your income might also be less.  Close analysis is therefore required to ensure you stay within your total budget.

In the post Coronavirus era, we encourage continued prudent spending.  You can track your spending easily with expense tracking apps.  Your bank might provide you with expense tracking options or you can consider using the 22Seven application.

What is an Emergency Fund and why do I need it even more post Covid-19?

Your emergency fund is an account linked to your bank account. You need to save at least 3 months of your nett pay (after tax and deductions) in this account.  The purpose of this account is to have cash available in an emergency or when your income temporarily dries up.  This interest will not be taxable if you are not earning other forms of interest.  Individuals under the age of 65 can earn interest of up to R23 800 per annum (R34 500 if you are older than 65) before tax is relevant.  You should earn interest of between 4% to 6% in this account.  This is significantly more than you would earn in your cheque or savings account.  Check with your bank to consider the account options available to you.  This account must be immediately accessible.

Post Covid-19 we advise that your emergency fund be prioritised.  You must implement this as soon as possible to avoid relying on short term debt.  We also advise that you increase your emergency fund to provide a higher level of comfort.  Emergency fund savings of 6 months of your nett pay would provide you with peace of mind.  This should allow you to navigate through the uncertainties of the post Covid-19 era.

How has the Covid-19 pandemic affected our goals and objectives?

The lockdown presents itself with a great opportunity to revisit your goals and objectives.  Ensure that all aspects of your financial plan are still relevant.

The following important questions need to be asked:

• Can I afford to stop working at age 65?
• Are there any passive income opportunities?
• Do we still want to own a holiday house?
• Do we need a bigger house?
• A new car would be nice, but is it necessary?
• What part of ‘normal’ life do I want to go back to?

Be as honest as possible when answering these questions.  The outcome may surprise you. Your careful planning will bear fruit in the long term.

Should I be prioritising my annual review with my Financial Planner? 

Like a dental check-up, many people brush off their annual financial review as an unnecessary inconvenience in their busy schedules. As the economic effects of lockdown become more real, many have come to realise the value of performing a review, especially when it comes to cost-cutting. For instance, if you have not recently reviewed your life cover, you may be over-insured on some benefits and can safely cut back.  This could enable you to increase contributions towards your long-term investment goals.  It is therefore vital to prioritise time with your financial planner.

Should I review my Will more often? 

As the first cases of Covid-19 were reported in South Africa, many of us dusted off our wills. Doubtless, many have been surprised by the outdated content of their wills. There has been an   increase in requests for estate planning over the past few weeks. Going forward, it makes sense to review your will annually.

Should I change my life cover?

For many, life cover is a grudge purchase. The pandemic has forced us to confront our mortality. Life cover is a key estate planning tool that can be used to build liquidity in your estate, cover your debt and make provision for your loved ones.  Your strategy with regards to long term insurance, including life cover, should not be affected due to the Covid-19 pandemic.

How has Covid-19 affected my strategy on disability cover and income protection?

Disability cover and income protection are also often regarded as unnecessary cover. The pandemic has focussed our attention on the need to protect against the loss of income due to ill health or disability. Uncertainty around Covid-19 related health effects are causes for concern. A comprehensive income protection benefit is imperative.

Can I lodge a claim against my income protection insurance if I am unable to earn an income due to the lockdown?

Unfortunately, your income protection only provides a pay-out if you are sick or disabled.  You will thus only be able to institute a claim if your loss of income is due to illness.  Your insurance contract will determine the required number of days on sick leave before a claim can be lodged.

Does my employer have to pay me during the lockdown of the business?

These are unprecedented limes. The Department of Labour regards the lockdown as unpaid special leave and any payment that a company can make is more than the Department of Labour requires. An employee has a right to be advised of a reduction in salary in writing. The employer has the right to let an employee stay at home for the period of the lockdown, but they need to assist employees to apply for the TERS Relief Benefit.

What is TERS (Temporary Employee / Employer Relief Scheme)?

TERS is for companies who have either not been able to pay salaries due to a full shutdown or partial shutdown (short time) of their businesses due to Covid-19.  If the company can pay full salaries, it would not be entitled to TERS.

The TERS payment is a tax-free payment for the employee. The top-up salary amount paid by the employer is remuneration and subject to normal tax and deductions. UIF is not calculated on TERS and payable on the top-up salary amount paid by the employer only.

Can my company claim the Covid-19 TERS benefit on behalf of employees?

The employer has to:

• register once for TERS. If a company claimed TERS only for April for example, the company would need to claim for May and again for June (where relevant).
• have been registered as a UIF employer, even if payments are not up to date. Companies who have registered with UIF just after the 15 March 2020 may not be eligible for the benefit.
• have the employees still on the payroll, even if the employees are not being paid in full or at all.
• pay the full payment received as TERS to the employee.

The total of the benefit together with any additional payment by the employer in any period cannot be more than the remuneration that the employee would ordinarily have received for working during that period.

An employer can claim TERS only for some employees for instance where there is a partial lockdown.

Informal businesses such as spaza shops and hair saloons can claim if they are registered with the UIF.

The maximum TERS payment is R 6 638.40 for 30 days or R 6 859.68 for 31 days. A calculator was made available.

Your accountant or tax practitioner should be able to assist.