Can you maintain your current lifestyle without salary?

PUNCH Newspaper

The author of ‘Practical Steps to Financial Freedom and Independence,’ Usiere Uko, writes about preparing for a job loss before it happens.

Chike is a top management employee of a bank. He owns a house in Victoria Garden City and travels abroad with his family every year on summer vacation. He drives a Range Rover Sports while his wife drives a Honda Pilot and owns a shop at Ikota Shopping Complex. The shop is just to keep her busy so that she gets to leave the house in-between school runs. Their kids attend one of the most expensive schools in the Lekki area. In addition to a good pay package, Chike had access to staff loans at single digit interest rates. He was the shining light of his extended family. Then the unimaginable happened! The consolidation party ended and in came Lamido Sanusi as the new Governor of the Central Bank of Nigeria. His Managing Director was fired and sent to jail.

The devil’s alternative

Overnight, the future did not look as bright as before. Soon, his bank was acquired by another bank. Chike was called in by the new management and given a choice – the devil’s alternative as he called it. Take your benefits and leave or forfeit your benefits and start as a new hire with new conditions of service.

Chike was raving mad when he came to meet me for advice. He wanted to call it a day. He felt insulted that after putting in two decades and rising to the top, he was being asked to start afresh at God-knows-what position. The snag was he owed his former bank; if his new employers deducted the outstanding balance on his loan he would go home virtually empty handed. If he chose to stay, he would lose all his entitlements and start all over again from ground zero. He was too angry to contemplate the option of starting afresh. At the same time, he could not afford to walk away empty handed. What was my advice?

I was caught between a rock and a hard place. I understood how he felt and would readily ask him to go and do something else with his life, but with what? There are bills to be paid and seed capital to put up. I could not ask him to go back under the prevailing circumstances. Rather than offer my opinion, I asked him to go and sleep on it and think it through. Often, when we are angry, we tend to think we have options and may take a rash decision that we may later regret. Chike eventually opted to start afresh. That was the better of the two evils. I thought so too. Only this time, he needed to quickly put his house in order and achieve financial independence, which will give him the option to choose tomorrow.

Lifestyle fuelled by earned income

Many are in Chike’s shoes. They live a high consumption lifestyle fuelled by earned income. As income rises, consumption goes up accordingly without any corresponding increase in savings and investment in income generating assets. If anything happens to that income source, there is a crisis. The standard of living can nosedive drastically if an equivalent job is not secured as soon as possible. Many have not paused to ask themselves if they can maintain their current lifestyle if their salaries stop today. Their basic assumption is that their job will always be there till they retire, their income will always go up, their pension will always be there after they have retired and their pension will support them throughout their old age.

All these are assumptions and not facts. Things can and do change. Basing your future on these assumptions is taking a very risky position without a safety net. For one, your company may not be there till you retire. In this era of mergers and acquisitions, your employer does not need your permission to sell off the company and move on if he gets an offer he cannot refuse. The marketplace has become very dynamic and many known brands in the brick and mortar era have become extinct.

Your income may not always go up. Sometimes workers opt for a pay cut rather than retrenchment during a period of economic downturn. Putting all your hopes on your pension is another risky proposition. A market crash can punch giant holes in your portfolio and leave you stranded while it lasts. A deal gone bad can also jeopardise your nest egg. Pension fund managers by law are required to spread the risks, but this may not always be the case in reality.

Assuming all things went as you had hoped they would and you got a pension for life, inflation and ill health could eat away at your purchasing power, driving down your standard of living unless your children are able and willing to bail you out every month.

Tomorrow will surely come

Planning for retirement goes beyond funding your pension. You should aim to achieve financial independence as soon as you possibly can. Never assume that your job will be there for you forever. In the information age, forever is not as long as it used to be. Companies downsize when profits go down. The myth of job security went with the industrial age. You need to start planning for eventualities. What if? You need to prepare for a possible job loss before it happens. You don’t wait for war to break out before enrolling in the military academy. The best time to prepare for war is in the time of peace. The best time to take insurance is when you don’t need it. By the time an incident happens, it may be too late.

Forward looking companies do scenario planning. They brainstorm and throw up different scenarios and plan for them. Companies that run on data usually have a duplicate copy of their data stored at a separate location as part of their disaster recovery plan for business continuity. They back up their data and store it in a safe place. They don’t assume nothing will happen.

Everything that has a beginning has an end. Your job will come to an end some day, often without warning. Even when you get a handsome severance package, if you don’t have a plan for it, others will help you to spend it and you will be back to square one, and without a job. If you cannot maintain your current standard of living without your salary, it may be time to consider cutting back the waste and invest in securing your family’s financial future.


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