Lulama Mrara, Regional Manager at Old Mutual Personal Finance

Households navigating the current volatile economic environment are warned to resist the urge to make financial decisions in isolation and instead seek professional financial advice, says Lulama Mrara, Regional Manager at Old Mutual Personal Finance.

Mrara says the current global economic backdrop is becoming increasingly uncertain, with geopolitical tensions likely to push oil prices up. Higher oil prices typically translate into higher petrol costs, which in turn raise the cost of transporting goods and commuting to work.

“The reality is that once fuel prices increase, the cost of almost everything rises. That can ultimately place upward pressure on inflation and the overall cost of living,” she explains.

Against this global backdrop, South Africa’s latest national budget, tabled in February by Finance Minister Enoch Godongwana, has taken a pro-consumer approach, introducing tax concessions that effectively put more money into consumers’ pockets.

Mrara is referring to the consumer tax relief introduced through inflationary adjustments to personal income tax brackets and medical tax credits, which help mitigate “bracket creep” and increase take-home pay. These concessions include raising the annual tax-free savings account limit to R46 000 from R36 000 and the increase in the maximum deductible retirement fund contributions from R350 000 to R430 000 per year.

Mrara, however, cautions that households should not interpret this as additional disposable income.

“Consumers should not see the tax relief as extra money to spend. Government’s intention is to provide relief and help households cope with and alleviate the financial pressure they are under,” she says.

Instead, she encourages consumers to use the additional money strategically.

“The priority should, first and foremost, be to reduce debt and live within your means. Once debt obligations are reduced, whatever remains should ideally be directed towards building savings.”

Mrara warns that many South Africans have become too comfortable with accumulating debt rather than building wealth, a phenomenon evidenced by South Africa’s well-known poor savings culture. According to the National Research Foundation, South Africa has one of the highest household debt-to-income ratios in the world, having reached as high as 77.1%.

This means that for every rand a household earns, it owes 77 cents. This effectively exposes many families to financial vulnerability when economic shocks occur.

“When you reduce debt, you also reduce the interest burden on your finances. That gives you more flexibility and more room to save, and ultimately the power to invest in your financial health,” Mrara adds.

Mrara believes that financial health is closely linked to one’s overall stability in life.

She describes a stable life as being supported by three interconnected pillars: financial, psychological and emotional stability.

“Financial stability is a key foundation. When your finances are under control, it has a positive impact on your psychological and emotional wellbeing as well.”

According to Mrara, sound financial advice plays a crucial role in helping individuals achieve that stability.

With the start of a new tax year, Mrara says now is an ideal time for consumers to review their finances and reassess their budgets.

A financial adviser can help individuals understand how new tax rules, savings opportunities and investment options may have an impact on their long-term plans.

“This is the right time to review your financial plan and make sure that your money is working for you in the most efficient way possible,” she says.

Mrara adds that certain life events should also always prompt people to consult a financial adviser. These include getting married, changing jobs, having children, or dealing with a retrenchment, among others.

But she emphasises that the current economic cycle is itself reason enough to seek professional financial guidance.

“In times of economic uncertainty, it becomes increasingly important to stay close to your financial adviser so that you can avoid making major financial decisions without proper guidance, which could have a long-lasting impact on your financial wellness and future,” Mrara concludes.