Managing your finances after a pay cut

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Strategies to somehow stay afloat facing a dire financial future: Interview with John Manyike from Old Mutual.

NOMPU SIZIBA: The Covid-19 pandemic and associated lockdowns have seen economies the world over suffer great economic hardship, with businesses losing revenue and some staff losing their jobs or having to take a pay cut. This is a nightmare scenario for any household, but the advice being given in the case of having to take a pay cut is that one should not panic. It will be difficult, but it may be possible to adjust if finances are managed properly.

Well, to share some tips with us, I’m joined on the line by John Manyike, the head of financial education at Old Mutual. Thanks very much, John, for joining us. What’s not entirely clear is the sort of quantitative impact that’s been wrought by the Covid-19 lockdown here in South Africa in terms of job losses, and our main topic of discussion today [June 7, 2020] – that of pay cuts. But for breadwinners, who’ve been advised that they’re likely to have to take a 20% or 30% cut in salary, for example, your first piece of advice is that they need to keep calm and not panic. Please explain.

JOHN MANYIKE: I think it’s devastating news – a salary cut. It’s as scary as retrenchment itself. So one can appreciate the fact that we have a lot of working class people, who are literally living from hand to mouth. You can tell because, if they were not paid for one month, for many South Africans it can take months if not years to actually recover from this. So that’s why it’s important, firstly, to do the work on your mindset if something like that were happen. There are certainly a couple things that can be done. And I think there’s [some comfort] one can take from the fact that government has made some announcements about having introduced the Temporary Employer/Employee Relief Scheme.

So then, because you have the Unemployment Insurance Fund, you are encouraged to file your claim against the UIF directly with your employer. You don’t have to go straight to the Department of Labour. You actually sign a claim directly with your employer. In fact, the Department of Labour has encouraged employers to pay their workers, and then claim back against UIF to offset what they have actually paid employees. So that financial relief is the first thing.

NOMPU SIZIBA: Yes.

JOHN MANYIKE: And then of course there’s the issue of having to deal with creditors. But I must say there are different banks, different credit providers, and different terms and conditions that relate to Covid life insurance. There are those that do cover their customers if there is a salary cut, to the extent that they cover that shortfall.

Then others might say well, there is a total loss, but it’s worth trying to enquire what the terms and conditions of your credit life insurance are with your credit provider. This is very, very important because, if you’ve don’t negotiate with your creditors, having enquired if you do have credit life insurance – those are two things to definitely consider, among other things.

NOMPU SIZIBA: I suppose one of the first things that one needs to do – instead of ducking and diving, like you say – is to go directly to the bank and communicate with them and see where [you] can get assistance.

JOHN MANYIKE: Absolutely. The ostrich syndrome is the worst thing that anybody can adopt – just burying your head in the sand, hoping that the trouble will just simply go away. No, you have to proactively speak to your credit provider to explain what the situation is, and possibly even show them the letter from your employer so that some arrangements can be made for you.

But, unfortunately, it will have to come with some uncomfortable decisions to be made, because you have to also appreciate that you may not be able to maintain the same lifestyle, standard of living you had before your salary cut.

And that’s why having a conversation with your family is also important, especially for those who know that they are taking care of their immediate family, as well as their extended family. We do have a lot of that in our country. So it’s important to take your family into your confidence to the extent that you manage their expectations. If there are certain things that you could do before, when you know that you are not going to be able to be going forward, it’s a great way to do that, I must also hasten to add that speaking to your financial advisor is equally important, so look at how you restructure your policies in terms of the covers that you have, including your short-term insurance. These are among other things that I believe would be very, very necessary.

One of my favourite tips that I encourage people to do, because I know people get devastated when they hear they are going lose their job or have a salary cut. But the issue is, [you could] really think long and hard about the possibility of identifying alternative streams of income. I mean, some of us have hobbies, and haven’t even thought of how we can monetise some of those hobbies. But being married to a certain income is not necessarily the solution. It might not work for everyone, but for those who are able to identify alternative streams of income it is definitely worth pursuing.

NOMPU SIZIBA: I suppose what you’re saying is it’s fair enough, but in these days of lockdown, John, it’s quite tough. But then I suppose there is the digital avenue as well.

JOHN MANYIKE:

Absolutely. Every crisis comes with its own opportunities. There are people who never used to manufacture the masks, or what we call PPE today. Now all of a sudden we have lots of people having to produce stuff around what is needed. It’s about identifying a gap, and then actually going for it.

But I don’t think we would have done justice to this topic without mentioning the need to re-prioritise your budget, because it all starts with a budget. You need to make some tough decisions around what stays and what goes. And I think that’s where the game-changer is going to come from.

NOMPU SIZIBA: Give us some ideas. Sometimes it’s difficult to think out of the box.

JOHN MANYIKE: I do believe, depending on the severity of the salary cut, in some instances it might even mean having to downscale, perhaps even the house that you live in. If you’re lucky enough, you might even make a profit out of that house because, with the low interest rates, it might be much easier to find a buyer and rather find something much cheaper – just for you to recover. You will rebuild your life to get back to your glory days. That’s definitely something to look at.

I think the same with a car, if you have to. But even having to change schools for your children. If your children are in a private school and if the conditions dictate that you make some drastic decisions to the extent that you have to move into a public school, so be it.

Those are some of the tough decisions that people have to make. I know that it’s very difficult. I cannot imagine myself living a different lifestyle. But unfortunately we have to respond to what’s happening.

NOMPU SIZIBA: We’ve discussed this before, but it’s also a mindset thing. No one can really afford in these days to be trying to keep up with the Joneses or with the Ndlovus.

JOHN MANYIKE: Absolutely. I think you just have to make peace with it.

You don’t owe anybody an expensive car or an expensive house. You make a decision that suits you and your family for the sake of your wellbeing.

NOMPU SIZIBA: Super. John, we’re going to leave it there. We’ve run out of time, but thank you so much for your insights.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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