Retrenchment can come as a surprise and be a difficult and stressful event, both emotionally and financially. If you are ever retrenched, it’s important to have a financial plan in place to help you from falling into a depression or losing your major assets as a result of financial difficulties.
Want to protect your finances until you find another job? Consider these financial decisions:
1. Take care of your retrenchment package
When you first receive your retrenchment package, you might be tempted to spend all or a large part of it on something not in your budget. Especially if it seems like a large amount. Resist this urge. Think of this money not as a bonus but as an insurance policy – there to provide you with an income if you cannot immediately find work. If you need to use it to stay alive, so be it but if you can save and invest it, even better! Talk to a reputable financial adviser about how best to manage this sum so that it can fulfil your current and future financial needs. The idea is to stretch your daily living funds longer and invest as much as you can as wisely as possible, for example, by topping up your retirement fund.
2. Don’t forget your medical aid scheme
If you enjoyed a medical aid scheme where you worked, you will forfeit that benefit when you are retrenched. Medical aid can be a great help, especially if you have a family. So plan to continue contributions to a medical aid scheme or shop around for a new insurer. Either way, it’s a good idea to spend time deciding how you will fund your medical expenses in the future.
3. Protect your retirement savings
If you’ve worked for a company for a while, you might have contributed to a pension fund or retirement scheme. When this money is paid out, don’t squander it. It isn’t part of your salary. Rather, invest it in a retirement annuity or preservation fund – chat to your financial adviser about the best option. And, remember, if you cash it, you will pay a hefty tax.
4. Don’t rush to pay off major debts
It might be tempting to use your retrenchment package to pay off a major debt like your bond in one go but this might not be the best idea. You might need that money for longer than you think, as you search for a new job. Rather, if possible, continue to pay off your debt as planned, using the retrenchment money as a salary and don’t make any hasty money decisions. If you can’t pay off your standard debts, don’t hide – speak to your creditors honestly and let them know that you have been retrenched. Take time to negotiate more favourable payment terms and make these part of your new financial plan.
5. Think of your future income
You cannot sustain your lifestyle or protect your wealth if you do not earn money in the future. Retrenchment is a time for planning and taking action – seek out new opportunities to earn a living wage as soon as you can. Look for a new job, take on some freelance work, practice a skill as a profession, or start your own business. Even if it is an interim measure between positions, you need to get money flowing into (rather than out of) your bank account.
The financial decisions that you make around or during a retrenchment can have serious long-term effects on your wealth. Even if it never happens to you, it is always better to be safe than sorry.