How to nail your 2020 finances as an over-stretched ‘SANDWICHER’
Many South Africans are caring for their parents and children, which can make it tricky to save sufficiently for retirement. It’s still early in the year, so perhaps now is the time to consider how to ‘nail’ your finances for the year ahead. Your financial adviser should take your ‘sandwich position’ – your dual care duties – into account and help you to make provision for yourself in the same way you lovingly make provision for others.
Madri Jacobs, financial adviser at Sanlam, says, “If you are a family member who provides for your children, parents and/or siblings and the wider family – this could include people in your employment, such as a domestic helper – the question is ‘How can I make this work?’ It’s vital to plan ahead and to have the meaningful conversations upfront.”
Jacobs says a typical scenario would be a working couple with children in primary school who are caring for a retired parent. The parent moves in to save on paying rates and taxes on an additional home. She also helps provide childcare for the children. But the arrangement still puts strain on the couple’s retirement savings, especially as they assist with the parent’s medical expenses. This kind of situation isn’t an exception; it has become the norm. She adds that looking after the financial needs of three generations takes serious planning.
Here, she goes into some considerations to factor in to have the best chance of meeting financial obligations in the new year:
1. Get very practical.
Determine the needs of your dependents, then look at how to finance these. Take your own needs into account as well! As an example, a bank could lend you money to pay for educational expenses, but a bank will not lend you money to provide income in your retirement. As advisers, we always caution clients against using their retirement savings to assist parents and children, since it will be almost impossible to make these up, due to the opportunity cost of compound interest and limits to one’s budget for future savings.
2. Involve siblings in your financial planning discussions.
If you have siblings, chat to them about how to share the financial responsibility of looking after your parents. Have frank, loving conversations with your parents too. Sometimes arrangements can be made where you assist your parents but set up an agreement for repayment, e.g. out of their estate (given that funds are available). It is grim to think about it, but one should also look at it objectively. Having said this – ensure that all family members’ wills are up to date. If people are comfortable to do so, discuss the content of the wills to avoid surprises down-the-line.
3. Draw up a family budget to nail your finances.
Priorities should include:
Medical aid and gap cover for each family member: Investigate if a family plan is cheaper.
Short term cover for vehicles and household contents: an unexpected claim could be the last straw which breaks the camel’s back when your budget is already stretched. Utilise insurance to protect you.
Life cover: If you are the financial provider, other people are reliant on your income. If you should pass away this would put further strain on the family. Get professional assistance to determine a sufficient level of cover.
Provision for your children: Ensure you’ve stipulated guardians for your children in your will and have enough life cover to care for them.
Lump sum disability and income protection: Crucial ways to protect loved ones should you be unable to earn an income.
Provision for school fees: Often, you receive your salary for December earlier in the month and it is a long stretch to January’s salary! Set aside funds for school fees and other big obligations as soon as you receive December’s income, or ideally, even earlier.
Provide for travel expenses to/from work: This is often forgotten but these small sums add up! Perhaps investigate alternatives like carpooling or public transport, if viable.
Limit debt, especially credit cards and short-term loans: Be wary of the pitfalls of credit, including fees and high interest rates.
Get assistance with retirement and investment planning: Your current situation may last many years, so you need to have a plan for it. An objective professional’s opinion may help.
Severe Illness cover to supplement medical aid: This can be a good idea to bolster finances should a curveball occur.
Jacobs concludes, “Set a new year’s resolution to meet with your financial planner and get guidance on how to navigate your unique situation.”