Financial planning: start at end

HAVE you ever struggled to fully understand financial planning, investments, tax and estate planning, medical aid or short-term insurance?

Or, have you ever wished that somebody could translate all the convoluted and confusing terms into a language that you can understand?

The first words of wisdom are: keep the end in mind.

Financial planning is simply about what each and every person sees as their end-goal, dream lifestyle or ideal retirement because let’s face it, we do not work and go through all the stresses of modern life for nothing!

Keeping the end in mind is about the balance between living a comfortable life now as well as planning for retirement. So, what can I suggest? Use a simple, holistic financial plan. Before moving onto more advanced needs like savings plans, money markets, offshore investments and trusts, one must undergo a financial needs analysis (FNA).

Almost like Maslow’s Hierarchy of Needs, there are three base needs to identify and tackle first, because no matter who you are these same needs apply to everybody:

Medical aid – My dad always said “your health is your No 1 asset”. Because of that, medical aid is one of the (massively overlooked) building blocks of each and every personal portfolio.

Sadly, it is only when people are really ill that they realise what a massive negative financial impact not having medical aid really has;

Risk – Short-term insurance is key to ensuring that various types of cover are in place.

Cover generally falls into categories such as life, severe illness, disability and income protection cover. Numerous theories abound as to how much cover you need to have, but to me it is crucial that clients just have some basic cover in place.

That way all that is needed is to ensure that each year cover is increased until the ideal amount identified in the FNA is achieved; and

Retirement – The most discussed of the three basic financial needs.

To cut a long story short, retirement planning is something that MUST be done as it is the only aspect of financial planning that positively links retirement, tax and estate planning.

No matter what, unless you are already contributing over 27.5% of your monthly income to an RA, you are not contributing enough.

Naturally, the key is to ensure that your money is going into the right, risk-based fund.