Create wealth instead of acting wealthy if you get a pension payout

With economists forecasting that things are going to get much worse within the global and local economy, wouldn’t winning the jackpot be perfect? A pot of gold that would supposedly fix all our problems and make us much happier?

The show I blew it which airs on Mzansi Magic DStv disproves that theory. If you are receiving a lump sum payout due to retrenchment, early retirement or even the lottery, we would like you to think of the following:

1. Speak to a tax consultant first.

Tax is the first thing to eat your wealth before everything else. A tax consultant will help you lessen that burden. For example, Tina is 54 years old and has R500,000 in a pension fund. If she resigns now and takes a full withdrawal, she will pay R85,500 to the taxman. If she retires next year at the age of 55, she will benefit from the R500,000 tax-free benefit. However, she is only allowed to take a third of the lump sum in cash. The remaining portion will be transferred into an annuity, which will provide a monthly income. A simple advice such as waiting can save you thousands of rands, imagine all the other advice you could get.

2. Avoid concentrated risk.

Ensure that you have a diversified approach as to how you invest your money. Consulting with a trusted adviser will help you understand which investment vehicles and investment funds are suited to your needs. You should never invest 100% in one company’s share offering, because when that company goes down, your investment will too. 

One of the biggest examples of concentrated risk is having one source of income. Creating more income streams creates a safety net and maximises opportunities to create wealth. As you try to find another job, look into a side hustle. 

3. The lottery effect is going to bite you. 

This is when we accept the high probability of losing for a small chance of earning a large amount. 

The minute you receive a large cash payout there will be a flood of new investment schemes promising triple returns or you may fall for the joint venture your friend is dangling in front of you. Don’t let all these scams take you down a bad path. Before you invest, do your homework.

4. Pay off your debt as much as you can.

This will help you to build your emergency savings and maximise your investment opportunities. On the I blew it show, many of the contestants think the money will never be finished. But it does run out and all the people you were helping, will become unreachable. Financial independence does not come from having a lot of money, but from being diligent with what you have.

5. The funds you have received is an opportunity to create wealth and not to look wealthy. 

We have seen many people try to reinvent themselves by living lavishly and in less than 12 months lose it all. This behaviour also impacts on your neighbours, because everyone wants to keep up with the Joneses. You can be a good example to your neighbours when it comes to money management, by making decisions that will not reduce your chances of success in the long run.

6. Think total cost, always.

If you are planning on buying a car or renovating your home calculate how much is expected from you in total. Get comparable quotes and use referrals from trusted sources. For smaller items such as cellphone contracts or buying clothes on a credit account, the principle is exactly the same. When you step away from thinking it’s a few rands a month to the total value, you are able to assess if it is worth to buy it right now or later. 

True happiness, amongst other things comes from knowing that you have created a stable financial foundation for your family. If you do win the lottery don’t quit your job to just take longer holidays. 

• Kunene is an associate financial planner at BDO Wealth Advisers who holds the Certified Financial Planner accreditation