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Any good financial plan starts with the basis of what one has – what’s in your control. Then one has to understand the circumstance they find themselves in, and work within those confines. And if those confines aren’t suitable, then one has the option to find another more suitable environment, whether that be moving oneself, or moving one’s finances. It’s a situation many South Africans find themselves in as independent financial adviser Candice Paine explores in the piece below. From emigration to externalising income, the decision making might seem difficult, but Paine has boiled the conundrum down to three options from which to devise a plan… – Stuart Lowman
By Candice Paine*
I am an independent financial advisor. I spend my time with a diverse range of clients of differing means. My sole role and my civic duty as I see it is two-fold – to help people manage their finances so that primarily they can look after themselves when they can no longer work and so that they can enjoy life along the way to that goal.
Facing your finances frees you up to make other plans. Or it should.
Increasingly, I am being asked to make the same plan over and over. After a lengthy conversation, it often comes down to – please could you balance:
- I need to leave my corporate job. I can’t bear the environment anymore and I want to do ‘my own thing’;
- I want my money protected from political risk and the ‘inevitable’ decline in the rand. Oh, and I might want to emigrate.
This isn’t a simple nor binary problem. The cause is obvious to see. In the current zeitgeist, people of a certain age are questioning their roles, their jobs and their raison d’etre. They’re concluding that despite being paid very well in some cases and having job security and benefits like pension funds, affordable group risk and bonuses, they don’t want to be in a dictated, soul-less environment anymore where they feel neither heard nor valued in many instances. And most importantly where they feel like it doesn’t matter if they, the individual were present or not. This simple explanation disregards all the far more complex issues hounding our corporates right now, like age-ism, sexism, racism etc. You get the picture. People want out.
As an aside, corporates are going to have to work much harder to retain experienced talent. And the experienced talent will also have to weigh up how much they want to ‘do their own thing’ vs. what the corporate offers. Doing your own thing often doesn’t come with a corporate price tag.
I’m sure I don’t have to spell out part two of the problem i.e. political risk and the rand.
So what is the solution? It really is all in the numbers. The heart stuff the individual must resolve with their families or other important people in their lives, but a good place to start is the numbers.
Calculate how much you have saved for retirement and whether this will see you in good stead. Retirement funding is not just your pension, provident or retirement annuity fund. It will include property you have, discretionary investments you’ve accumulated along the way and any other assets which may at some point allow you to draw an income. Establishing passive income streams is good.
This isn’t a difficult calculation, but it needs to be done right. Don’t use blue sky options here. You want realistic growth figures, inflation levels and time frames. Remember, if the numbers don’t work (in a spreadsheet), it really isn’t going to work in real life either.
Your ability to leave your well-paying employment now depends on how much of your net wealth (I am hoping that when I say net, you actually have no debt by the time you retire) is needed to fund your retirement. If it is every last cent including the contributions to pension funding between now and age 65, I think the answer is obvious. Stay put.
If not, you now have new calculations to do which should cover things like, how much will my new venture cost; by how much can I (realistically) pull my belt in; will my family support me in this; can I afford to lose money right now and how much. How do I really feel about living on less. Only you will know these answers weighed up against the siren song of what ‘your own thing’ is. Once again, be rational and conservative here. Time may not be on your side.
This brings me to time, and the second problem which is wanting to externalise wealth. Investment planning is very effective when the individual has made all the big life decisions they need to. It is virtually impossible to plan your finances for ‘if then, this that’ scenarios. This is because the most potent input to investing is time. The more you have the better you can plan, the more risk you can tolerate, the more wealth you can build.
If you don’t make decisions, you can’t make plans. And where and how to invest becomes difficult and can result in losses owing to opportunity costs.
So the South African conundrum broadly boils down to three options:
- You’re sure you are going to emigrate at some point. Pick a date. You’ll need the date to work towards;
- You’re sure you aren’t going to emigrate, but you want your assets in hard currency and away from SA politics, weak economic growth etc;
- You’re not sure if you’re staying or going, but you want options.
There are plausible solutions for all three scenarios. They aren’t perfect and they will involve trade-offs but they can be done. And when the time comes to execute on your decisions you will have some comfort that there will be finances available according to what you’ve planned. The corollary of this, is that if you don’t put a peg in the ground, by the time you want to move there probably won’t be (sufficient) financial support to execute. A good financial advisor can explain the options and help you to make the right decisions that have a high probability of working out. But, you get the point, he/she can’t do this without a plan from you.
These decisions aren’t easy or obvious but they come to all of us with the rub of life. The worst thing you can do is not interrogate them and plan for them if they truly are what you want.
The financial plan is arguably the easy part of this process and may even go a long way to helping you crystallise the decisions you’ve been pondering for a while. The numbers will tell you whether you can or can’t move forward on your plans – or what extra you need to do to get there. So at the risk of labouring the point – make the decisions, set up the plan and let it roll out.
- Candice Paine is an independent financial advisor and an asset management consultant.
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