Retrenchment is an extremely traumatic event that can severely compromise your family’s financial wellness if it is not properly managed. Having a financial plan can help you deal with stresses of retrenchment and free you up to concentrate and reestablishing your career.
There are four key areas that you must manage
Because you do not know how long it will take to get another job, you need to manage your money to ensure that it will last as long as possible. To do this, you need to reduce the outflow of money from your household.
Draw up a monthly budget of what you are currently spending, go through it and decide what is absolutely essential. Cut out the rest till your finances improve. Remember, this is just a temporary situation
Next, let’s look at possible sources of income. If you have contributed to the UIF fund, you will be entitled to monthly UIF payments. This will, however, only be for a limited period.
If you have any income from investments, including rental properties, list them as well. Also add any income from any other occupations or contract jobs. This will give you a clear picture of what money is coming in and what amount is going out.
Your severance package must be used to fill any gaps that you have identified. If you divide your severance package by the gap you have identified you will know how many months you will have before your money runs out.
My recommendation is to try and put 6 months’ worth of your gap amount into a savings or money market account. If you have an access bond and the discipline not to draw more than your gap, then this would be ideal. The aim is to tide you over while you are getting your work life sorted.
- Retirement Funds
Another lump sum you will receive are the contributions you and your employer made to your retirement fund. My recommendation is to put the entire amount into a preservation fund and not be tempted to make a withdrawal for a small debt or a holiday.
You are only allowed to make one withdrawal from your preservation fund so do not make any initial withdrawals when you transfer across to the preservation fund as this will count as your withdrawal.
You should avoid making any drawdowns from these funds as they will be needed when you retire.
- Risk cover
If your company has a retirement fund, there is a very good chance that the fund had life and disability benefits. In many instances, these benefits have Continuous Assurance Options. This allows you to take out an individual life policy with the same benefits but with no medicals.
If you have medical issues, I would recommend that you ask your financial adviser to find out if this is available to you. As you will be losing any group cover, you need to ensure that you have sufficient private cover. You need to act quickly as most retirement funds give you one month in which to exercise this option.
- Medical Aid
It is important that you remain a member of your medical aid. If you have a break in cover you may find yourself having exclusions and a waiting period applied. If you cannot afford the cover, consider dropping down to a lower level of cover rather than cancelling your cover completely.
The decisions you make when you are retrenched are important and you should use the services of a certified financial planner to help you make the right calls.
Kenny Meiring MBA CFP ® is an independent financial adviser.
082 856 0348 or at Financialwellnesscoach.co.za
Find a Financial Professional @ https://fpimymoney123.co.za/find-a-financial-planner/