How to Prepare Financially When Your Job Suddenly Doesn’t Feel So Safe Anymore
We are living in extraordinarily uncertain times and the most uncertain thing for a lot of people is whether they will still have a job in the next couple of months.
The pandemic has hurt and crippled economies across the globe, and South Africa is no exception. According to a new report by the International Labour Organization, 6.7% of working hours are expected to be wiped out globally in the second quarter of this year. This is estimated to negatively affect about 195 million people who have a full-time job.
The report highlighted accommodation and food services, manufacturing, retail, business and administrative sectors as the ones that will see the most job losses.
In South Africa, we’ve already seen several companies shutting down completely, a significant number of job losses as a result and numerous salary cuts across some industries. As an employed person, this is enough to drive you into a panic. But the most important thing to do now is to know how prepared you are financially for the worst-case scenario. It’s also the time to start putting measures in place to make sure that you’re in the best financial position possible if something changes.
Here are five ways you can get ahead of the curve:
1/ Take stock of your current financial position
If there’s one thing this pandemic has reminded us of it’s that life is unpredictable, and there’s never been a more important time to be extremely clear on exactly what your financial position is on all fronts.
Old Mutual’s Head of Financial Services John Manyike says that this is not the time to take any financial risks.
“It’s so important that everyone is aware of their exact financial standing at the moment, and the best way to go about this is to get in touch with an expert in the field of financial planning – like a financial advisor,” he says.
2/ Budget, budget, budget
Lettie Mzwinila, a specialist (strategic markets) at Allan Gray says that one of the most practical things someone can do now is revise their entire budget and cut down on unnecessary spending.
“Lockdown has revealed to us where wasteful spend lies,” she says. “Just because your cellphone contract is up for renewal, doesn’t mean that you need to renew it. The same can be said about any services you pay for but hardly use. If you are not fully maximising the benefits of services you subscribe to, cut them out of your budget.”
Manyike adds that it doesn’t matter how little or how much you earn, if you have money, you need to be clear on exactly where it does and doesn’t go based on prioritisation.
“Once you’ve done your budget and it so happens that you have some money left over, it’s best to redirect it to your debts or to start an emergency fund.”
3/ Keep your pension as secure as you can
Many people see their pension fund as something that can cushion the blow if they lose their job, but Manyike says that no one should even be considering withdrawing 100% of their pension. He says that this is especially important for women – because women tend to live longer than men, the long-term consequences of this decision could create a lot more challenges in the future.
“It’s important to recognise that, yes, the pandemic is here and it’s real, but it won’t necessarily be around forever,” he says. “You don’t want to make such a long-term decision based on something short-term.”
Mzwinila is of the same mind, but adds that we are living in abnormal times with abnormal circumstances that can arise.
“If you really need access to cash to tide yourself over, consider taking only as much as you expect to need until you are back on your feet. You can then transfer the balance into a preservation fund or retirement annuity,” she says.
She goes on to explain that a preservation fund is specifically designed to invest your pension or provident fund savings and as long as you have not already made a withdrawal, it allows you a once-off chance to access your funds in the future.
“Modern (but not all) retirement annuities will often allow you to start and stop contributions at any time without penalties, and a portion of your contributions will be tax-free while you are saving.”
4/ Switch up your insurance packages
A lot of us haven’t been travelling back and forth to work for over a month now, and this has quite an impact on how your insurance payments are set up.
“If you’re working from home, your risk profile for your car insurance has changed dramatically to the point that you should be paying a lesser premium,” Manyike says.
“The same applies to household insurance – the fact that the house is always occupied means that the risk of burglary and theft is reduced significantly.”
5/ Get in touch with your debtors
When you’ve done your budget and you foresee that you are going to have a shortfall, that is the point at which you need to immediately contact your credit providers.
“Fortunately, banks and financial institutions have announced some relief payment holidays in this period, so that’s definitely something to look into with your bank,” Manyike says.
“When you speak to your debtors, be sure to find out if you have credit insurance – in which case, it may cover your instalment up to 12 months if you lose your job, depending on what’s applicable at the time.”
He explains that you could have credit insurance on your home loan, credit card, or short-term loans without even knowing that you do. Credit insurance was previously used to pay a person’s outstanding debt after they died, but the legislation changed in 2017, allowing for credit insurance to be used to pay the instalment of those debts for up to a year if you become unemployed and can’t earn an income.