No-one is spared life’s difficulties and challenges, and even the financially savvy occasionally learn lessons the hard way. Just ask Lee Hancox CFP®, Head of Channel & Segment Marketing at Sanlam Personal Finance, who shares some key insights she learned having faced some major curveballs over the years, to help others to avoid or navigate similar situations.
“It’s important to share these lessons from my life experiences - just because I’m in the industry, doesn’t mean I don’t go through financial hard knocks”.
Hancox suggests some of these could include:
Retrenchment: not that surprising considering South Africa has one of the world’s highest unemployment rates (over 27%), and we’re entering our 22nd year with an unemployment rate of over 20%.
Divorce: currently, four out of ten marriages end in divorce before their tenth anniversary.
The sudden disability of the main breadwinner: the loss of an ability to earn an income is the single biggest risk a 20-to-50-year-old faces.
Being a member of the sandwich generation: those who need to make provision for the future whilst looking after parents and children experience tremendous financial strain.
Here, Hancox shares four hard knocks she’s encountered and what she’s learnt from them:
1. No money to study.
At age 17, I matriculated and realised my parents hadn’t been able to save up for my tertiary education. So, I looked for a job and that’s how I ended up in insurance.
At the time, I did what I needed to do. And I wouldn’t change my life course. Though, now that I have my own child, I see it as a non-negotiable to put money away for her future – whether she wants to study, take a gap year, or explore a different journey altogether.
Other lessons I’ve learned:
To talk to my child about money. In SA, this often seems like a taboo, but it’s so important to instill sober money principles in young people - how to manage it, how to save and why you can’t always buy things when you want them.
To get a handle on the crazy costs of raising kids! These expenses rack up fast, so I think it’s critical to try to keep debt to a minimum and to stop trying to keep up with the Joneses. Ultimately, what matters is that my family is financially secure.
While it is important to save towards your child’s education, it is important not to do so to the detriment of your retirement savings. You need to find a healthy balance between providing for your child’s future and your retirement.
2. I got divorced when I was 26 and my daughter was a year old.
I wanted the divorce over and done with and I assumed we’d always be friends, working together to raise our child. So I didn’t make the best financial decisions at the time. In retrospect, I wish I’d spoken to the attorney and a financial planner. I completely underestimated the less obvious costs involved. Like setting up a house or daycare – previously, my ex-spouse’s mom had been looking after our child.
My advice for others in this situation:
Don’t do a ‘quickie divorce’. Speak to your attorney and financial planner. Make sure you negotiate a settlement that’s fair, makes provision for your child’s education, including their tertiary education, and ensures that maintenance increases annually, in line with inflation.
Make sure you have an insurance policy in place that covers maintenance commitments. Not having this could lead to difficult situations. For example, if your ex passes away or becomes disabled, maintenance will have a preferential claim on the estate, which means your ex-spouse’s current partner might have to sell assets to free up liquidity in order to cover the maintenance claim.
Change your will. You have three months from date of your divorce to do this, otherwise the law sees it as your wish that your ex still inherits.
Change the beneficiaries on your life insurance policy.
Be cognisant of the other potential, unforeseen expenses of a divorce, like the attorney fee, transfer duties on properties, and potential changes to retirement benefits.
3. Juggling a fluctuating income isn’t easy.
Early on in my career, I was a broker consultant who earned predominantly commission. That meant my income constantly fluctuated between ‘good and bad months’. In the good months, it was really tempting to splash out and buy a car, for example. Then I’d be hit by another bad month.
The lessons I learnt:
To plan my budget based on the worst months.
Save during the good months and settle debts when you can.
Have an emergency fund with three-to-six months’ worth of salaries. Keep contributing to this contingency fund to carry you through tighter financial times.
4. My husband was retrenched.
We lived in Joburg before we got married. 7 years ago, my husband was offered a dealer principal position in Cape Town. I got a transfer to the Sanlam Cape Town office and we decided to move. We were both earning good money and on the verge of buying a new house when my husband was retrenched.
Don’t overextend yourself financially. In our case, the house would have been a huge burden, with only one income to pay off the bond.
Have that emergency fund in place! I can’t stress this one enough.
Don’t be tempted to live off the retrenchment package. I really advise chatting to a financial planner about your best options. Is there enough money to fund your own business venture, for example? My husband started a company that’s only breaking even three years down-the-line. Can you afford that? Also, it’s often a very bad idea to cash in your retirement savings. You’ll be taxed on it and you’ll find it difficult to replace the lost retirement savings over time due to various reasons, not least of all the effect of compound interest.
“With everything that’s happened, I think my biggest lesson has been to keep my financial planner close. Don’t hide things because you don’t think they’re relevant. When things get difficult and the curveballs come your way, that’s when you need to pick up the phone and call someone you trust.”