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,
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.
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.
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.
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.
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.
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.
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