The most frequent topic of discussion when I meet with SA professionals and entrepreneurs is about their concern for their country. They usually want to know how they should plan their finances, and, specifically, how they can protect themselves in the event of a collapse of SA’s economy.
Given the last 10 years of economic destruction and the massive uncertainty created by ANC policies, you can understand these fears.
Unfortunately, fear is never a great basis for rational financial planning. When considering what to do with your money in these uncertain times, it might be best to start with a strategy that reduces or eliminates fear. People are often surprised how a plan for reducing fear can be the start of a life-changing process.
Understand how much you need
Before getting on a plane to some unknown destination, it is worth knowing how much capital you would need to live a decent life in another country.
A great guide is American author Rob Berger’s book Retire Before Mom and Dad, in which he explains that a good lifestyle in the US would cost about $60,000 a year.
At an exchange rate of R15 to the dollar, that equates to R900,000. To fund this annual expense he calculates that you would need $1.5m (R22.5m) invested in a balanced portfolio.
How are you going to accumulate this money?
People who are considering a move abroad to safeguard their financial future must make sure they can accumulate savings in their new country to achieve financial security. Remember that your arrival in a new country is not the end goal, the main aim is financial security.
This is where many people find a problem with their planning. Most high-income earners find that they need to take a step backwards in their careers when they arrive in a new country, meaning they will earn less and have to spend more as their cost of living will be higher.
Domestically, high-income earners can rely on the low cost of labour in SA to assist with housekeeping, child care and other services. In every developed economy, these services are very expensive and even those who earn a lot struggle to pay for these services while saving for retirement.
Despite our economic woes, policy uncertainty and rampant social problems, it is still possible for you, as a high-income earner, to maintain a good standard of living in SA and provide a world-class private education for your children. In addition, if you exercise some financial discipline, you can still save for retirement.
Consider a test run
I often suggest that if you consider a move abroad, you must first prepare yourself and your family for your new lifestyle at least 12 months before leaving SA. This means you should move into a small, rented apartment that would be of similar size to what you would be able to afford overseas. In addition, you should reduce or eliminate the services of your domestic workers so that you, your spouse and your children can get used to your domestic chores.
After 12 months, your family should be better prepared for the move and hopefully you would have also used the time to accumulate more savings. It is also a good litmus test for your family to determine if this is the life they really want to lead.
Capital accumulation is possible
It is often possible for you to accumulate capital faster in SA than you would overseas. Even as the rand depreciates, high-income earners who are careful with their spending should be able to consistently accumulate capital in SA that can be sent overseas at regular intervals.
If you can live a high-quality life in SA while earning a better income than you would overseas, it makes sense to accumulate capital while living in SA. My experience with SA residents who have accumulated enough overseas capital is that they find SA politics to be much less stressful.
This financial security offers you a different perspective on SA’s problems and many people in this position continue to thrive here. Once they have achieved their international savings targets, many of them continue to invest in SA assets as they see opportunities in this market.
Balance is key
SA is not for the fainthearted and our current economic and political climate is concerning. However, this does not mean you should take a one-way bet that the country offers no investment opportunities.
It is too early (despite the gnashing of teeth by the doomsday prophets) to predict the end of SA. I am really concerned about the implications of issues such as expropriation without compensation, National Health Insurance and prescribed assets, but it is too early to be certain that these are going to be implemented in a way that confirms our worst fears.
It would not make sense to externalise all your capital until we have more facts. Remember that much of the coverage of these issues in the media is to create hype. Rational views rarely create the same emotion as scary speculation.
Despite all the destruction caused by Zumanomics, JSE investors have achieved growth rates of more than 13% a year over the last 50 years. This is relevant because the time frame includes the reign of PW Botha, who was far worse for the economy than Zuma.
For now, wait for more concrete information on actual policy decisions before you make any radical decisions and don’t forget to enjoy the benefits of living in our country — it is an amazing place despite the efforts of our politicians
• Warren Ingram is a wealth manager at Galileo Capital and former winner of the Financial Planner of the Year. You can follow him on @warreningram
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