Michelle Human: Liberty Legal Marketing Services

Set yourself on the path to financial freedom by completing just one financial task a month

 

Step one: Make an appointment to see a reputable financial adviser

The best way to find a reputable financial adviser is probably by word-of-mouth. Ask around and let colleagues, friends and family guide you. Remember that personality is an important factor - what works for them may not necessarily work for you but it is a good starting point. Find someone they have been dealing with for some time and most importantly, someone that they trust.

The web can also be a valuable source of information. Contact organisations such as the Financial Planning Institute at www.fpi.co.za to see a list of all of their affiliated financial advisers.

When you meet the financial adviser don’t be hesitant to ask questions such as:

Don’t feel intimidated to ask as FAIS1 (the law regulating the financial planning industry) already requires advisers to disclose all of this information in writing.

Step two: Do a comprehensive financial needs analysis

Once you feel comfortable with your financial adviser, the first step will be to conduct a thorough financial needs analysis. This will involve discussing your financial needs and goals, particularly in the event of death, disability and retirement.

You will need to give the financial adviser a good idea of where you stand in relation to these goals so that any gaps can be addressed. Make sure that you provide information about your existing policies, group benefits provided by your employer, your will and information relating to your income.

Step three: Pay yourself first

Retirement always seems such a long way off but it is funny how these things creep up on you. How many pay days do you have left until retirement?

A 40-year-old who plans to retire at 60 and has a life expectancy of 75 has 240 pay days left to save for retirement. Sounds like a long time, until you realise that these 240 pay days need to provide sufficient income for 180 pay days in retirement!

Thanks to medical technology, we are living longer. This means that we need to realistically consider that our retirement may last longer than we expected. Have we saved enough to last this long? Have we considered the impact of stock market crashes, higher-than-expected inflation and possible job losses along the way?

Make sure that your retirement plan is robust enough to weather the challenges that it may face.   

Step four: Understanding the legal implications of your marriage

Did you know that your marital regime may affect your financial plan? Make sure that you understand the basic implications of your marital status. In community of property is the default marriage contract in South Africa. If you have an ante-nuptial contract, it will either exclude or include the accrual of assets during your marriage.

If you have chosen not to marry but are living with someone as a so called “common-law” spouse, make sure that you understand what this means for your financial planning. Such a union, which is deemed to be permanent, may be regarded as a marriage, giving you and your spouse certain rights and obligations. However, this is not always easy to prove. You may want to formalise your relationship with a civil union.

Step five: Until death us do part...make or revise your will

No one likes to think about passing away, but having a plan for such events does not make them happen. So take control of the process and ensure that your will is up to date. Your will is the only way to have any say in what will happen to your belongings when you pass away. It can also save costs and make sure that there is no delay in winding up your estate.

Step six: Losing a loved one...what would happen to your dependants if you were to pass away?

Life cover plays an important role in any financial plan. It is a cost-effective way to make sure that any wishes you have stated in your will can actually be funded. Consider using life cover to provide for dependants such as your spouse and/or children, paying off your bond or other debts and covering any estate duty or other costs arising from your death. Ultimately it allows you to leave a legacy for those that you love.

Step seven: What about me?

Being diagnosed with a critical illness can be a life-changing event with enormous financial implications. With comprehensive critical illness cover, you will be able to afford the best possible care and hopefully recover without facing financial ruin. Bear in mind that critical illness cover is designed to assist with the costs associated with the impact that the diagnosis has on your lifestyle. These costs may not seem like a big deal initially, but they can add up to a huge sum very quickly.

In 2010, Liberty paid a total of R 281.2 million in critical illness protection claims. Of these claims 41% related to a cancer diagnosis. So the premise that it will never happen to you just doesn’t hold any water. Make sure that your financial plan includes sufficient critical illness cover to prevent your lifestyle from being affected by such a diagnosis.

Step eight: Disability

Becoming disabled can be devastating in so many ways but it doesn’t have to be devastating financially. Your ability to earn an income in the future could be regarded as your greatest asset, especially if you are young, well-qualified and skilled.

Make sure that you consider what would happen financially if you were disabled either permanently or temporarily. Perhaps you would need a lump sum initially to meet expenses not covered by your medical aid and set up an environment to cater for your disability. Your long-term need may be to replace your monthly income. Having a plan to cater for these needs enures that you don’t have to worry about the financial implications of any disability.

Step nine: Pennywise...saving for a future goal

The definition of saving is simple: it is money that is not spent. But in order to really see a sound return you need to go further than just saving. You need to invest. Bear in mind that your investment needs to outperform inflation so that you are earning a real return. The Rule of 72 says that if inflation averages at 10% over the period of your investment, your buying power halves every 7 years!

Make sure that your investment suits your risk profile. If you are young you may be willing to invest for a longer period, be more aggressive and willing to take on more risk. An older investor may be more conservative in order to preserve capital.

Step ten: Saving for a rainy day...

A comprehensive financial plan must have some provision for everyday emergencies. You don’t want to have all your spare cash tied up in long-term investments and not be able to deal with a small emergency when it happens.

Part of the process of setting up your emergency fund would be to establish a monthly budget. Understand what your monthly expenses are and what, if anything, is left over at the end of the month.

Ideally aim to have three months’ worth of income or expenses in a readily accessible fund.

Step eleven: Consolidate all important information

Gather all of your important documents together and file them away in a safe place. It might be a good idea to have someone you trust keep certified copies as well. This way they are readily available in case of need.
Make sure that you include:

Step twelve: An action plan for the future


Now that you have put your plan in place, it is time for action. Commit to an annual review with your financial adviser. Also remember to discuss any life-changing events, like a change of job, birth of a child, marriage or divorce, with your financial adviser. These events have an important impact on your financial plan.

1 Financial Advisory and Intermediary Services Act