Get back to basics to thrive in 2023

*This content is brought to you by Brenthurst Wealth

By Josh MacRae *

On the back of the eighth consecutive interest rate hike since the beginning of 2022, South African investors have a lot on their minds. Even though inflation is showing signs of slowing globally, another interest rate increase is expected this week – this after three consecutive 75 bps hikes in 2022, the largest increases in two decades.  

This is discouraging news, to say the least, especially if SA does into the recession that has been widely predicted for 2023. When, where and how hard that recession will hit remains to be seen, but it’s a dark cloud many investors would rather avoid.

The reality, though, is that there’s no hiding from these external influences on your daily life and long-term financial plan. But that doesn’t mean you can’t prepare yourself so you can ride out the storm in 2023.

This will be a key concern for households with debt because interest rates staying higher for longer will prolong the pain. It’s no exaggeration that balancing your budget will become a critical skill in the year ahead.

Here are four tips that can help you do that just that:

1. Don’t panic

This is a cardinal rule of investing that becomes ever more important in time when interest rates are rising, or inflation is high.

Yes, it can be very disheartening when you see your buying power eroded in front of your eyes. And even more so when these conditions start to affect your investment portfolio. But, whatever you do, try avoiding the urge to panic and rash decisions.

Always bear in mind that this is temporary. Inflation will start to recede, interest rate hikes will then cease and markets are sure to respond in kind.

If you panic and sell out of the market when valuations are low, you effectively lock in your losses at that price. By waiting for the rebound, you won’t have lost capital, maybe just a bit of momentum in your path to long-term growth.

2. Figure out a way to settle your debts

There are many different ways to reduce, consolidate or eliminate your debts. By doing so, you’ll lower your debt burden, as well as you monthly debt payments and the amount of interest you pay.

Living debt-free isn’t always possible for us all, but you can be more selective about the type of debt you have, and why. A mortgage on your home, for instance, is difficult to live without, whereas you can do without credit card debt if you put your mind to it.

By eliminating debt, you can redirect those payments to something more productive, like savings or investments.

Devising a plan to cut debt and start saving is much easier when you have expert advice to guide you. So, I’d suggest speaking to your financial advisor to explain your current position and what you’d like to change. This type of expert and emotional support can go a long way to helping you realise your dreams.

You can cut your debt in many ways – like first paying off high-interest credit, or the smallest amount so that you feel encouraged to carry on settling other debts. You could also refinance your debt or consolidate many debts into one. But be careful of the interest rates that you’re charged, because you want to get a better deal than you currently have.

3. Monitor your spending

You might be familiar with the old cliché: if you fail to plan, then you plan to fail.

This is especially relevant to how you manage your money, because if you don’t have a plan for how you use your capital then you probably won’t reach your financial goals. This plan starts with something as simple as a monthly budget that allows you to allocate and track your spending.

Many bank mobile apps now offer the ability to create a budget that monitors your spending to see if you’re doing what you committed to doing.

If you see that you’re overspending, then you must take action to either cut back on that expense, or scale back other spending so that you’re living within your means. You might also need to change your shopping habits, or search for discounts and specials on everyday items.

4. Invest wisely

As is always the case, some investment assets or instruments will perform well when others are not. That means that you’ll still find profitable destinations for your capital. Investments like real estate and commodities, for instance, can help protect against rising prices and diminishing purchasing power.

Even though diversifying into these asset classes makes sense, it’s wise not to forget about the long-term growth potential of stocks, unit trusts and other equity-linked assets. It’s also worth remembering that they invariably offer the best opportunities when fear and uncertainty are at their greatest.

By staying invested in the market, while continuing to invest during market downturns, you’re putting yourself in the best position to benefit from a market recovery. When will markets recover? Who knows? Which is why it’s impossible to time the market.

One last piece of advice is to take the trouble to stay informed about what’s happening in the economy, in the markets and the globe generally. This will help you make informed decisions about your investments and help you stay ahead of the curve.

Because in times like these you need every advantage you can get so that your long-term goals remain intact.

• Josh MacRae, is a Financial Advisor at Brenthurst Cape Town, under the direct supervision of Brian Butchart.

Read also:

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