Whole fam­ily urged to be in­volved in the fi­nances

If you prac­tise solid fi­nan­cial plan­ning through­out your life, you will be more likely to weather eco­nomic down­turns with less stress. At the re­cent ac­sis/Per­sonal Fi­nance Fi­nan­cial Plan­ning Club meet­ings, es­pe­cially pre­sented for Women’s Day this month,

Weekend Argus (Saturday Edition) - - PERSONAL FINANCE -

Your fi­nan­cial sit­u­a­tion is prob­a­bly one of the big­gest stresses you face to­day, par­tic­u­larly in the face of the eco­nomic melt­down.

“The more con­trol you have over your fi­nances, the greater your peace of mind,” Eve­lyn Doubell, the head of fi­nan­cial plan­ning busi­ness de­vel­op­ment at ac­sis, says.

You should find a qual­i­fied fi­nan­cial plan­ner who you feel comfortable with to help you de­velop a strat­egy to achieve your fi­nan­cial goals. You will need to take into ac­count some fac­tors that are unique to women (see the sec­tion on re­tire­ment plan­ning be­low) and oth­ers that ap­ply to both men and women.

BUD­GET

One of the ba­sic steps of fi­nan­cial plan­ning is to draw up a bud­get.

“A bud­get is a bud­get and not a tar­get. Sim­ply be­cause you have bud­geted R1 500 for cloth­ing ev­ery month does not mean that you have to spend that much on cloth­ing ev­ery month,” Doubell says.

You should aim to limit your ex­pen­di­ture to the bud­geted amount or less and save any funds that you don’t spend.

She points out that while it is easy to ac­knowl­edge that you shouldn’t be spending more than you ac­tu­ally have, most peo­ple fail to re­alise that ex­pen­di­ture on your credit and store cards is ex­actly that – spending money you don’t have.

“You know you’re in trou­ble when you start skip­ping one pay­ment in or­der to meet an­other. My ad­vice is to draw up a plan to pay off your debts, start­ing with the debt that has the high­est in­ter­est, and then cut up your store cards so that you only spend money you have,” she says.

SAV­INGS

You need to iden­tify your short­term (one year), medium-term (two to five years) and long-term (more than five years) goals and make ap­pro­pri­ate sav­ings choices for your goals.

“For ex­am­ple, if you are sav­ing for the short term, you don’t re­quire any eq­uity ex­po­sure, and could con­sider a cash fund that you can dip into at short no­tice,” Doubell says.

Ideally, you should have an emer­gency fund with the equiv­a­lent of at least three months’ in­come. Doubell says many peo­ple tend to panic at the thought of how much money is re­quired for an emer­gency fund.

“Start with a small sav­ing and as time passes, you will be able to grow your sav­ings to the point where it matches three months’ in­come. Then you can put the money you are sav­ing to­wards some­thing else,” she says.

Your emer­gency fund should be in a sav­ings prod­uct that you can ac­cess quickly and eas­ily, such as a

bank sav­ings ac­count.

RE­LA­TION­SHIPS

If you are in a re­la­tion­ship, it is im­por­tant to have a joint fi­nan­cial plan and to dis­cuss fi­nances so that your fi­nan­cial ob­jec­tives are aligned.

Doubell says husbands of­ten don’t talk to their wives about their fi­nances. And it can also work the other way around. “Of­ten in a re­la­tion­ship, you will find that one part­ner (usu­ally the hus­band) han­dles the fi­nances. This is un­healthy, both for your re­la­tion­ship and your fi­nances. Each part­ner in the re­la­tion­ship should know what their joint in­come and ex­penses are as well as their as­sets and li­a­bil­i­ties,” she says. (See “Don’t let fi­nan­cial stress de­rail your re­la­tion­ships with loved ones”, be­low.)

THE IM­POR­TANCE OF A WILL

You and your part­ner should each have a will drawn up and reg­u­larly up­dated so that they re­main rel­e­vant to your cir­cum­stances. You should make sure a will is clearly worded. If it is not, your es­tate may take longer to wind up as a re­sult of dis­putes be­tween your heirs, and funds will be tied up for longer than nec­es­sary. Doubell points out that an es­tate can take as long as 12 to 18 months to be fi­nalised, and dur­ing that time your part­ner won’t be able ac­cess any­thing in the es­tate. So you should make ar­range­ments for funds that can be ac­cessed by your part­ner on your death.

For ex­am­ple, you could en­sure that your part­ner is named as the ben­e­fi­ciary on your life as­sur­ance pol­icy so that pro­ceeds go di­rectly to him or her.

If you die without a will, you are said to die in­tes­tate and your as­sets are dis­trib­uted ac­cord­ing to the law of in­tes­tate suc­ces­sion. This means that your money may end up go­ing to the sis­ter you have not been speak­ing to for 10 years.

RE­TIRE­MENT PLAN­NING

Doubell says a ma­jor source of con­cern for you as a woman should be the fact that re­tired women tend to run out of money sooner than their male coun­ter­parts be­cause women tend to live longer than men. “The av­er­age (re­tired) man to­day is ex­pected to live to about 74, while the av­er­age woman is ex­pected to live to 80, if not older,”, she says.

This means that as a woman, you need to save 15 per­cent more than a man of the same age would save for re­tire­ment.

If you re­tire at the age of 55, you will need to have saved enough money to last you 30 years. “Ideally, you should start sav­ing for your re­tire­ment from the time you start earn­ing money, but it is never too late to start sav­ing if you haven’t done so al­ready,” Doubell says.

“The bot­tom line is, as a woman, you should in­crease what­ever you are cur­rently sav­ing in your re­tire­ment fund by at least 15 per­cent to safe­guard your fu­ture and so that your sav­ings will last through­out your re­tire­ment.

“A trusted Cer­ti­fied Fi­nan­cial Plan­ner should be able to help you cal­cu­late the sav­ings you re­quire for re­tire­ment,” she says.

HAV­ING CHIL­DREN

Many women choose to take time off from work­ing to bear and raise chil­dren and then re­tur n to their ca­reers once their chil­dren have reached a cer­tain age. This break in ca­reer usu­ally varies be­tween three and ten years.

How­ever, when mak­ing such a choice, you should con­sider not only how you are go­ing to meet your monthly ex­penses but also the ef­fect the break will have on your re­tire­ment sav­ings.

Ac­cord­ing to the Alexan­der Forbes Mem­ber Watch, if, from the time you start work­ing, you take no break from your ca­reer to have chil­dren (ex­cept your ma­ter­nity leave), and you save 16 per­cent of your earn­ings to­wards your re­tire­ment fund you could end up with ap­prox­i­mately 75 per­cent of your fi­nal pen­sion­able salary as your pen­sion in re­tire­ment. (Your pen­sion­able salary is gen­er­ally lower than your cost-to-com­pany salary be­cause it ex­cludes ben­e­fits such as a car al­lowance and bonuses. This is the salary your re­tire­ment ben­e­fits are based on.)

This per­cent­age of your fi­nal pen­sion­able salary de­creases if you take time off from your ca­reer to raise your chil­dren, be­cause of the lack of re­tire­ment fund con­tri­bu­tions within that pe­riod.

As­sum­ing that you take time off from the age of 30 and you do not cash in your re­tire­ment sav­ings at that point:

If you take a three-year break from work­ing, your pen­sion is re­duced to 65 per­cent of your fi­nal pen­sion­able salary and you will need to save 18.5 per­cent more to catch up;

If you take a five-year break from work­ing, your pen­sion is re­duced to 59 per­cent of your fi­nal pen­sion­able salary and you will need to save 20 per­cent more to catch up;

If you take a 10-year break from work­ing, your pen­sion is re­duced to 46 per­cent of your fi­nal pen­sion­able salary and you need to save 26 per­cent more to catch up.

IN CON­CLU­SION

The bot­tom line is that, as a woman, there are cer­tain fac­tors you need to take into ac­count when you draw up a fi­nan­cial plan. “You need to re­view your fi­nan­cial plan reg­u­larly and keep it rel­e­vant to your cir­cum­stances as they change,” Doubell says.

Eve­lyn Doubell of ac­sis

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