Finding your sweet spot financially when it comes to finding the right financial product that lets you get the best value for your money can be overwhelming. How do you know if it’s an investment or a time waster?
Will it be the right fit for you? We speak to Anne-Marie, a financial advisor, who answers the questions and more.
What is financial planning?
Financial planning entails the continuous practice of managing one’s personal finances to meet your future financial goals and can also serve as a risk management tool to protect your financial wellbeing when certain life changing events occur. As you age and your life circumstances change, so will your financial needs and goals. Financial planning is therefore an on-going process and one should continuously review your financial strategy to ensure that it still meets your future objectives.
However, if you are starting out in your career and faced with financial planning for the first time, where do you start?
The first step to financial planning is to determine one’s current financial situation. This will involve taking stock of all assets you own that a monetary value can be assigned to, as well as any debt obligations. What happens to your debt if you become disabled, unable to work or pass on? You will also need to assess your monthly budget. How much disposable income do you have left after repaying financial obligations?
What is the next step?
Once your current financial position is established, you can start to plan how you will realise, or protect, future financial goals. These goals will differ from one individual to the next however one’s priorities are usually characteristic to the stage of life you find yourself in.
For example, a young single person may focus on saving toward a specific financial goal such as a deposit for a house, a car or further education. A young couple with children may prioritise life cover to ensure the family’s standard of living should a partner pass away. Parents with school-going children may want to make provision for their kids’ education if something were to happen to either one or both parents. Later in life, when debt and family obligations are generally lower, individuals tend to become more concerned with their retirement savings.
What kind of risks should you plan for?
Irrespective of where you find yourself in the lifecycle, the first consideration should always be to protect your financial wellbeing by mitigating the risk of potentially devastating life events. Medical expenses, whether due to accident or illness, can be completely unexpected and financially crippling. Good medical aid and hospital cover can assist with the financial burden that such an event may bring. If you are financially able, gap-cover is highly recommended to further assist with financial shortfall between charged hospital rates and cover provided by traditional medical aid. Various medical products and options exist – it is recommended that you consult with an accredited financial advisor to guide you on the most appropriate product in line with your affordability.
Disability Insurance / Income Protection
If you become disabled and unable to work for any reason, who will take care of you? How will you provide for your financial needs? Disability cover is designed to bring financial relief when you become permanently disabled. It is recommended to extend disability cover to include income protection for salaried individuals, which will provide some form of monthly income to ensure one’s financial independence.
An average funeral can cost between R19 000 to R35 000. In the case of unexpected death in the family, if sufficient provision is not made, surviving family members are often left with the financial obligations associated with the burial costs of a loved one. Fortunately, the benefits of a funeral policy can extend to provide funeral cover for your nominated family members.
Life cover will pay a stated amount to your estate or nominated heirs upon your death. The intention of the cover is either to ensure the deceased’s liabilities are seen to, protecting the lifestyle of surviving dependent family members or creating wealth for one’s heirs. Depending on your lifestyle, affordability and needs, you can select the amount you wish to take out cover for. In comparison, Dread Disease (also known as Critical Illness cover) will pay out a lump sum upon diagnosis of a specified life threatening disease.