As I saw the headlines that MTN is retrenching 847 managers, my mind flashed back at the retrenchment cases I have dealt with. Retrenchment is a difficult time and it affects not just the person being retrenched but their loved ones too. There are however a few things that we could all do to reduce the stress of losing a job. In my experience, it is often better to proactively do what you need to do so you feel in control of your situation rather than not taking any action and wait until you are forced to act e.g. by your creditors. I also find that it is better for the person who is being retrenched to be the one to take the initiative than to wait for your partner to nudge you in a certain direction. Not all the guidelines given below will apply to everyone but hopefully you will find one that is useful for your own circumstances. No one can foretell the future so times ahead are very uncertain. So you want to err on the side of caution as no one knows if or when you will get another job.
Take a hard look at your monthly budget. What are the things that you can do without? Identify these and close them down e.g. credit cards, clothing store accounts, etc…
Your Post retrenchment budget
Write down what your budget will be after your retrenchment. There is no more income or very little income so you want your expenses to also reduce accordingly. The lower your expenses, the longer your retrenchment package is likely to last you.
Depending on your retrenchment package payout, try and settle most of your debts, especially your short-term expensive debt e.g. personal loans, revolving credit, furniture store accounts, etc…
Your Home Loan
Do you own a home? How far are you from paying it off? How big is your outstanding bond? Can you consider a home sharing arrangement or letting someone rent your garden cottage, a spare bedroom or flat let, if you have these? Can you still afford to keep your home or do you need to sell it? I wouldn’t recommend renting out your home – what if your tenants don’t pay the rent?
Pre-paying your home loan repayments for 6 or more months would be a wise idea, if you can afford to do this. However, please note that if you put in a huge lump sum into your home loan, your bank might not be willing to make you withdraw it while you are still retrenched.
Your home loan is the cheapest form of debt so you want to keep this facility open as far as possible. You have to strike a fine balance between prepaying a portion of your home loan to give yourself breathing space while you are looking for another job and ensuring that you don’t end up being forced to sell under pressure. Whenever you sell under pressure, you are likely to sell at a lower price as you might have to take an offer that you could have refused if you had the leverage to negotiate a better price.
How many cars do you have? If you have more than one car, can you afford to keep all your cars? Even if you have only one car, can you afford to keep it? Would it be a better option to sell it and buy a more affordable car? If you are married and you have more than 1 car, can you afford to keep both cars? Can you pay off your car? If you decide to pay it off, remember to ask for a settlement amount – this is likely to be lower than the outstanding balance. If you have a car and you are still paying for it, don’t let the monthly repayments cause you to lose your home or to put financial pressure on your family. It might be better to sell your car so you reduce your monthly expenses. Reducing your monthly expenses will reduce stress.
Retrenchment Protectors & Premium Waivers
Find out if any of your policies have retrenchment cover or premium waivers. If they do, you might find that you don’t have to pay premiums for about 6 to 12 months and you could also receive some income for a while.
Your life cover policy
This is one policy that I believe you must guard with all you have. You want to pay for this policy for at least 1 year in advance or more if you can afford to. If you allow it to lapse, you face the following risks:
- You may have contracted a disease that you are not aware of so you might not qualify for a policy once you have a job again
- Your health condition may have deteriorated with age and your premiums will be very expensive due to loadings
- You might get a policy and have exclusions for pre-existing health conditions
- You may die while you are still unemployed
Remember that you need life cover primarily to pay off all your debts when you die, to maintain the standard of living of your dependents and depending on the value of your estate and marital status and regime, to pay estate duty and executors fees upon your death.
Do you have children?
Telling your children that you are without a job must be one of the most difficult things to do. But it must be done. Depending on their age, the impact of the job loss must be explained to them too – this could mean reduced pocket money, fewer extra murals, fewer paid for extra lessons, no holidays, etc… Have you paid their school fees for the year? I believe you must pre-pay their school fees for at least a year so you shield them from the stress of your job loss. Are your kids in a private school? Can you still afford the private school fees or do you need to look for a public school?
Should you use your package to start your own business?
This is a very difficult one. Some successful businesses were started by people that were out of a job and needed to survive – the adrenalin rush pushed them to excellence. Yet we also know that many small businesses end up in failure. So the risk is depleting your money on a business that might not see the light of day and being without money sooner. So you must strike a very fine balance. If you already had the business on the side lines while you were employed and you already have a few customers, it might not be a bad idea to use a part of your package to invest in your business. You must decide how much money you will invest in it and if it doesn’t take off – cut your losses and don’t keep pumping money into it. It might also be a good idea to join an entrepreneurial support program so you receive professional guidance.
You have 3 main options when you get retrenched.
- To cash your package
- To transfer your money to a preservation fund
- To transfer your money to a retirement annuity or
- A combination of all 3 options.
Retrenchment is treated as retirement for tax purposes. From 1 March 2014, the tax-free allowance is R500 000 from all retirement products, combined, once in your lifetime – subject to certain conditions. You will be charged tax according to the table below. The higher the amount you withdraw, the higher the tax you will pay. If you choose to transfer your cash value to a Retirement Annuity, the transfer will be tax-free however you will not be able to access your money until age 55. If you transfer your benefit to a Preservation fund, the transfer is tax-free and you will be allowed one withdrawal, either partial or total, before retirement age, which is 55. Your choice will be informed by all of the above conditions and in all likelihood, you will need a combination of strategies rather than a single option.
Lump sum benefits are taxed according to the tax table below:
Get a financial advisorto guide you through the process. If you are getting retrenched and you need a financial advisor to guide you through the process, you can email me at email@example.com
- Get physical, go for a daily walk or run. This will not just keep you fit but will also help you remain positive about life.
- Go to the library daily – you can read the newspaper for free and read and relax. Hopefully you will find a job through the Classifieds section of the newspaper.
- Help your children with homework.
- Volunteer your services to a church, an NPO, a school or charity of your choice.
- Depending on your skills, assist a small business – many have plenty to do but don’t have enough revenue to pay high salaries.
- Do you have a housekeeper? Can you still afford her salary?
- This is the opportunity to discover your true passions, to do the things you never had time to do before.
One thing you must guard against when you get retrenched is shame and self-blame. You have just lost your job, do NOT lose your self-worth too. It is normal to feel afraid, unsure of yourself and even angry – but don’t take this out on yourself or your loved ones. Get counseling if you need to – many churches offer free counseling. You have a better chance at getting another job if you remain positive. Do voluntary service – you would be surprised how helping others when you are in need yields positive results for you.
Your new job
I have had the benefit of working with people who lost their jobs and are now employed. While retrenchment is painful and difficult for all of us, it will make you grow money wise. You are likely to end up financially successful because you were retrenched at some point in your life. While you are retrenched, you will learn lessons about money and yourself that you may never have learnt. You will learn to appreciate life more and enjoy the things that cost no money. You will truly appreciate the difference between needs and wants and when you are employed again, you will use your money wisely and grow your money in leaps and bounds – surpassing those that never lost a job. So feel the fear but know that from this point onwards, there can only be growth. Funny how our most difficult experiences can make us better people.
If you are an employer and are retrenching or consider retrenching your employees, it would be good if you offer them guidance during this time. Invite me for a FREE talk to your employees. Email me at firstname.lastname@example.org or call 083 258 1527