CEO of Momentum Investo, Stanley Gabriel, writes about how every South African household can use the principles of the budget speech to further their financial future.
Just over a week ago, Finance Minister Enoch Godongwana boldly took to the parliamentary podium to give the 2023 National Budget Speech.
As many know, finances are challenging at a household level, let alone for an entire nation. The latest Momentum/Unisa Household Financial Wellness Index estimated that only 1,9 million South African households are 'financially well'. It found that the most significant financial constraints holding households back were net wealth (considering assets and liabilities) and their sense of personal empowerment.
Watching minister Godongwana check the boxes of crises, I realised many important lessons could be learned from this address – ones that can help increase financial awareness and actions within the confines of average, everyday South African households.
Lesson 1: Understand the effect of taxes
For most households, one of the key takeaways from any National Budget Speech is the increase in certain taxes. For example, when the fuel levy and excise duties on alcohol and tobacco products increase, the general price of life increases.
Households need to understand the effect of taxes on their finances, both in terms of the direct costs of paying taxes and how they affect the economy. By understanding these effects, households can make informed decisions about their spending, savings, and investment strategies, which brings me to the next lesson.
Lesson 2: Prioritise saving and investment
If you listened to the National Budget Speech, you would understand the importance of carefully and meticulously planned investments. The government goes into great detail on expenditure and investment projects. It provides a comprehensive outlook and rationale for why these investments are important to growing the economy in the short, medium, and long term.
For households, prioritising where you put your money and whether that fosters financial growth is more important than ever. Whether starting with an emergency savings account or investing in unit trusts or a retirement product, households must ensure they put aside money for the future. They must make their money work for them.
Lesson 3: Manage debt carefully
When you listen to the budget speech, the debt-to-GDP ratio is a number of great importance. It tells us how much our country's debt is affecting our ability to grow. This year, the minister announced that the government would be taking on a portion of Eskom's debt. That's an extra R254 billion on the debt books, which will undoubtedly have a knock-on effect on the country's financial wellness.
The National Budget provides a critical lesson for households in carefully taking on debt and managing it effectively. This includes avoiding high-interest debt, such as credit card debt, and paying off any debt as quickly as possible. It also means being realistic about how much debt you can afford to take on and making sure to budget for repayments.
Lesson 4: Seek professional financial advice
Finally, the National Budget Speech underscores the importance of seeking professional financial advice. You know the finance minister is certainly not alone in his decision-making. He relies on an army of experts to lay out the national budget for the next financial year and beyond. The same should apply to households.
Whether it's from a financial planner, an accountant, or a tax specialist, professional financial advice can help households make informed decisions about their finances and avoid costly mistakes.
Professional advice can also help households take advantage of opportunities that may arise due to economic or government policy changes. For example, a financial adviser can recommend investment strategies that take advantage of the government's plans to increase infrastructure spending or even account for the new tax rebates offered to those who invest in solar power.
To sum it up, even if you think the National Budget Speech is not your favourite show on TV, it can provide some crucial lessons for households looking to increase their financial awareness and drive the right actions on the journey to success.
By understanding the impact of taxes, focusing on investments, managing debt carefully, and seeking professional financial advice, South Africans can begin making more informed decisions towards a more secure financial future.