A financial plan can be a shield
When money’s involved, the focus is all too often on products that can ‘maximise returns’. Unfortunately, greed often results in investors buying high and selling low, making irrational investment decisions and jeopardising long-term goals.
Yet, research suggests many South Africans are struggling to make ends meet, arguably putting them at risk to make irrational money and investment decisions.
Unisa and Momentum’s Consumer Financial Vulnerability Index for 2017’s second quarter showed consumer finances are now very sensitive to any changes. So “even a slight mishap will have a severe impact on the average consumer’s cash flow”.
An earlier version of this study showed individuals with a written financial plan were less financially vulnerable, says David Kop of the Financial Planning Institute of Southern Africa (FPI).
“A financial plan is a personal plan for how you manage your finances – what your goals and objectives are.”
What should a financial plan include?
It starts with three basic steps, says Kop.
1. You need a budget or you won’t know what you can afford to do.
2. It should review your debt, consider life cover in case of the breadwinner dying, and put a debt management process in place.
3. Consider appropriate savings and investments to meet other needs and goals.
FPI’s Nigel Willmott says people often think a financial plan will last 20 years. “All sorts of things happen in life and I think that the plan needs to be flexible.”
He says often financial planners largely focus on the event of retirement and death, and almost nothing in between. Financial plans must have an element of education, coaching, counselling, and advice. It’s also important to first address the three basic steps before selling products and it’s vital to help people understand their attitude and behaviour regarding money, he says.