Before you are tempted to go for that personal loan, it is worth your while to consider the future. Recessions are a part of economic life, and while we hope the next downturn won’t be as bad as we have just witnessed, it would be wise to plan for that eventuality by keeping your debt levels low and savings high.
Create a detailed budget: Know what goes into your bank account, what goes out, and where it is going. By creating that budget, you will have a clearer picture of your finances and know what you can afford and what you cannot.
Affordability: Now you can evaluate what you need, whether you should get a loan for it, and how much the repayments will be should you decide to get that loan — and most importantly whether you can afford it.
Healthy vs unhealthy debt: Do you really need to take out that loan? For example, while you may need a new lounge suite, is getting it on credit worth your while? Credit to buy a car or a house makes sense, but you should consider other options when buying other items such as furniture or computers. You don’t want to spend most of your salary on paying debt. We all need to access credit at some point but repaying those debts should not leave you with nothing to save at the end of the month.
Save for your home: Save ahead if you want to buy a new home in the near future, because the days of getting loans at prime less a certain amount are over. This is due to the increased cost, security and banking regulations around capital.
Have a plan B: When there is another recession, you need to ensure that you have a steady source of income, and perhaps even a plan B — as jobs are always at risk in a downturn. Sometimes that means thinking creatively about other ways to make money. To grow your capital, you might want to improve your skills or acquire new ones. These skills will give you an advantage during a recession in that you will have other options to make money should you lose your job.
Rainy day saving: When money comes into your account, you need to ensure that you put some aside for a rainy day. How you do it is a matter of choice, but it’s not something that can be put off for later.
Sugendhree Reddy is director of banking products at Standard Bank.
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