Taking stock of your finances

Correspondent | Monday April 27, 2015 14:32

We must consider how fragile our financial positions are should something unexpected happen.

You need to ask yourself: “What If?”

What if I get retrenched next month - will I be able to afford my monthly bills for a few months until I can secure another job?

What if I don’t get a salary increase or bonus this year?

What if interest rates increase, making my loans more expensive?  

What if the banks won’t lend to me in the future?

What if the law changes and those who have previously been blacklisted are no longer allowed to buy on credit?

What if there is a credit crunch?

What if a legitimate investment fails?

What if  the cost of property falls, will I be able to afford my mortgage?

Most of us will find these “what if” questions very hard to answer, for fear they might happen to us some day.  I am sure you can think of some other questions that could happen to you?

Let’s take a look at some of these to gauge how they could affect our money.

 

How much money will I get

paid if I get retrenched?

A retrenchment package is the pay and benefits an employee receives when he or she leaves employment at a company.

Standard Severance (Retrenchment) is mandated by the law of Botswana, but is not payable by employers that contribute to pension funds on behalf of their employees. Optional severance or retrenchment packages are at the discretion of the employer.

 

How is Standard Severance Calculated?

1 day’s salary for each month worked (years 1-5).

2 days’ salary for each month worked (years 6 onwards).

How much is 1 day’s salary?

If you work 22 days per month,

1 day’s salary is 1 month’s salary ÷22

Scenario A: *John has worked for the company for 8 years. His final salary is P10,000 per month for (on average) 22 days work. His contract is terminated - how much severance is due?

Or you can look at these tables below to give you an indication of how many months’ salary you may receive depending on how many years you have worked for your employer:

 

“What is a credit crunch, and

who does it affect me?”

A Credit Crunch is a sudden, sharp reduction in the availability of money or credit from banks and other lenders.  Of course, this affects you and I, the average person who is likely to borrow money, or who is already in debt.

When we are living within our means and have no debts, we can usually afford to weather a financial storm in our lives by relying on our savings.  If we aren’t in control of our finances, all of these factors will wreak havoc on our money.

“A lender is someone who will lend you money when the sun shines, but takes it away when it rains.”

 

Can a legitimate investment fail?

Every investment has an element of risk attached to it.  Depending on the type of investment, depends on the risk portfolio it carries with it. If you borrow money to invest, and the investment fails or does badly, you will struggle to pay back the loan. This is called gearing and is not a wise way of investing.

If you borrow to buy a home, this too is a form of gearing.  The reason why this is considered more acceptable is because the cost of paying the mortgage takes the place of your rent, so it should not be an additional expense in your budget. Make sure you can afford the monthly repayments; otherwise you are at risk of having your home taken from you if a credit crunch occurs and you are unable to pay your mortgage.

If you invest with your savings rather than from borrowed money, it will not bankrupt you if the investment does badly as you have no debt to pay against the money.  Be wise and ask many questions, before investing your hard earned money.  Make sure the investment carries an acceptable risk element that suits your appetite to risk.

 

“Empower Yourself to

achieve Financial Wellbeing”

The most important rule to remember is to get out bad debts as quickly as possible and then stay out of debt. Do not be tempted to buy today, what you cannot afford today.

 

Tshepiso Kgakatsi

Author: Tshepiso Kgakatsi – Training Manager with S.C.I. Training (Pty) Ltd. © S.C.I. Training began as a BQA accredited training institution specialising in Financial Education. We now also offer Debt Collecting services for companies with bad debtors and Debt Counselling services for those in financial distress. For help and information contact them on 3180243 or 75114375 or money@wellness.co.bw.