Learn how to survive retrenchment or loss of income

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Article supplied by Absa  

The Covid-19 pandemic has had a clear impact on companies, with serious economic strain not only on employees but also on employers. Economic disruptions have resulted in many companies having to downscale or close their doors permanently.

Facing retrenchment is a very frightening experience, but you can manage the stress and financial fallout if you have a plan in place.

Your tax benefits

While being retrenched is a financial blow, legally it allows you to access many benefits. This includes better tax rates.

While the retrenchment package itself is there to assist you with your day-to-day expenses, try not to use the retirement benefits portion for daily living as this could have a material impact on your future retirement benefit.

Insurance that covers your debt

If you have debts such as a short-term loan, credit card or even car finance, there is a good chance you have credit insurance.

In many cases the credit insurance will provide cover for between 6 and 12 months of your credit installments if you were permanently employed.

In order for the retrenchment claim to be processed, you would have to provide the following documents:

  • Section 189 Letter or Letter of Retrenchment on a company letterhead with valid company stamp.
  • Certified copy of ID
  • Certificate of service
  • Stamped UI 19
  • Settlement agreement/ Loan agreement
  • Employment contract (where required)

Steps to take if you are retrenched

Here are things you can do to make the process of dealing with retrenchment easier.

  1. Draw up a survival budget: This is how much you need to survive. Accept immediately that you’ll have to adjust your lifestyle sooner rather than later, the retrenchment will have less of an impact on your longer-term finances.
  2. Sign up for UIF online: Once you know your unemployment benefits, you will have a better idea of how much of your survival budget will be covered. Even if you chose to take the severance package, as long as your company has issued a section 189 letter, you can apply for unemployment benefits.
  3. Speak to your creditors and don’t just let your debt repayments lapse as that will negatively affect your credit score and could result in long-term legal problems.
  4. Speak to your car and home insurer. Your policy may include cover that waives your insurance premiums for a period of time, after being retrenched, which means you still have insurance in place even when you cannot afford the premiums. However, you need to notify the insurer rather than just leaving the debit order to bounce. If the debit order bounces, your cover will lapse.
  5. What to do with your home loan. If you are retrenched and have a home loan, contact your home loan provider immediately. In most cases you may have some form of credit insurance in place.

Remember that any restructuring of a loan will result in higher interest payments over time, but it can provide breathing space rather than losing your home.

Don’t rush into a new venture.

Don’t panic then immediately use your retrenchment package to start a small business. Setting up a business takes a great deal of research and planning, and most small businesses fail in their first year.

If working for yourself is a dream you have always had, use the opportunity but make sure you have a proper business plan and business case.

You can also find ways of earning an income, even a small one, without paying out capital.

Turning to side-hustles

Before you start, you need to do your homework and make sure you understand whether this is going to provide you with a real income.

Often people realise too late that the business is actually costing them money.

Helping your family when times are tough

Whilst recognising that everyone’s situation is completely different, most people not only feel obliged but are also expected to help out parents, siblings or cousins.

Here are four tips on how you can survive when times are tough, while still helping family out.

  1. Communicate
    If family members are accustomed to a fixed monthly amount and you cannot afford it anymore, be honest and let them know the reasons why.
  2. Commit
    Come with a number you can commit to and let it be known that it is only what you can afford going forward.
  3. Set boundaries
    Saying “NO” will not be the end of the world.
  4. Let go of guilt
    Get go of the guilt of not being able to help out as much as you want or is required of you.

A job is not the source of your self-worth

You are not your job. You exist beyond the boundaries of the role you inhabit. Understand that your self-worth is not defined by your career, but it is about how you act and what you do in your daily life.

Exercise regularly, don’t drink too much alcohol and eat healthy, balanced meals. The effects of retrenchment can be insidious and may hit you like a freight train – you have a duty to be kind to yourself until your fortunes change.

Your five-tip action plan 

  1. Be honest about your retrenchment with those around you.
  2. Don’t waste time questioning why you, and not someone else was retrenched.
  3. Use this opportunity to enhance your skills. If finances allow, register for a course or a trade. Alternatively, volunteer your services in areas where you may be able to learn a new skill.
  4. Get your CV up to date as soon as possible. The longer someone is without work, the harder it is for them to find employment.
  5. Apply for as many jobs for which you have the required skills as possible; and get a reference from the company that retrenched you with its reasons for retrenchment and ask them to highlight the value you added during your tenure.

Being ready to get things done – that’s Africanacity. And we’re here for it.