Money hacks: Surviving a life shock

Maya Fisher-French
2018-02-20 13:12
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 Money Makeover candidate Howard survived a major financial life crisis. Here's how

Last month, our Money Makeover contestant Howard faced a major crisis when the security firm he works for was liquidated. While Howard was fortunate to be offered a job with the new firm, it came with a R4 000 drop in income. Moreover, Howard has to purchase a car as the company will not provide the car Howard needs for work. 

“This hit me so hard. I could not eat or sleep well for two days as I was dealing with the shock. At the back of my mind, I’ve anticipated something like this happening at some distant future point, which is why I started the Rooms-to-Rent business. Unfortunately, this happened before my business had grown to pay me a healthy income.”

When the call came from his company, Howard went into panic mode. He seriously considered taking the retrenchment package to lower his debts, apply for debt review and collect UIF. But he took a deep breath and called his Money Makeover Absa adviser Elton Govender.

If this had happened to Howard six months ago, it could have wiped him out financially. With nearly R1 million in debt – which he took out to grow his property business – Howard would have had to consider debt review. This would have rendered him unable to grow his property business. 

READ: How to get your business ready for a loan

Fortunately, over the past six months, Howard has been working on improving his finances and can absorb this blow. He has emergency funds, a strict household budget that gives him a R3 000 surplus a month and, thanks to Elton, a proper set of accounts from his property business. He now knows he can draw a small salary to tide him over – even if it means slowing the growth of the business. 

“We will cut down our food budget by eating less meat. My wife is a domestic employee and will bring R2 000 to the table. I’m now strong and believe we will survive this salary cut,” Howard told us at the beginning of January.

READ: How to reduce your spending on takeaways

But then, Absa had some incredible news for Howard. All that work done over the last five months to separate the business and personal finances and draw up proper spreadsheets and a business plan, meant he qualified for a business loan. Reducing the average interest on the loans from 25% to 13% meant R4 000 less interest a month, almost exactly the amount of income he lost.

What we can learn from Howard’s experience is that if you get your finances in order, you can survive those life shocks; if not, they will take you down. Debt councillors say that, in their experience, when you are spending 40% of your income on debt repayments, you become financially vulnerable.

It is at this point that you cannot absorb a financial shock and you end up deeper in debt and, finally, debt review. Don’t wait until a crisis hits. Start getting your finances in order. When a crisis does happen, stay calm and get good advice.

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