How close are you to a personal recession?

Sep 6, 2018

Yes, we are in a technical recession meaning that our net growth on products and services has contracted for two consecutive quarters (-2,6% and -0,7%).

Increased taxes was not the solution

Personally, I see the big problem being the increase in VAT and the cost of fuel which has drastically affected the battered average household. Remember how the budget was delivered by our outgoing Minister of Finance who left shortly afterwards leaving us hung dry with increases in VAT, the fuel levy and so called ‘sin taxes’. Little wonder we now are struggling as an economy.

So what about your personal recession?

If you evaluate your personal finances how is your growth doing? A worthwhile measurement is your balance sheet measuring the market value of your assets (everything your own) over your liabilities (everything you owe). The difference, which is your net worth, should be growing at a higher rate than the prevailing rate of inflation which is currently 5,2%. 

Measuring this quarter on quarter will give you a clear indication of whether you are heading for a personal recession or keeping abreast of the headwinds of the rise in the cost of living. 

Prevention is far better than cure

In the knowledge that your financial position is contracting you should make drastic changes before you reach the inevitable. After all, it is easier to change your sails before a storm than in one. You will find opportunities by reducing expenditure relative to your income. The same applies to our economy. To improve our GDP and get out of a recession we have to produce more and spend less. 

All we can do is work with the things we can control. So have a hard and honest look at where your money is going. It should be allocating more to growth assets than debt. Hard times are ahead so the sooner you get a grip on things the better. Again, increasing taxes was not the route to improving our economy. It has proved to be damaging. Now we have to live with it and make a plan.