A financial plan is a dynamic tool that should be used in your daily life to manage your finances so that your money is always in the black – not just in the short term but over medium- and long-term periods too.
Wouter Fourie, CEO of Ascor Independent Wealth Managers, says he is a firm believer in the importance of planning – so much so that he had a five-year strategy in place before he entered the Financial Planning Institute’s Financial Planner of the Year competition this year.
“I put a great deal of planning into my entry and chose to do it this year, as it coincided with the 10th anniversary of Ascor Independent Wealth Managers,” he says.
Fourie says financial planning takes the guesswork out of managing your money and helps you fully understand the implications of your financial choices.
The average South African is battling to cope in the current economy and people are starting to realise the importance of saving.
“However, there are now more options for your savings than ever before and it is easy for the average person to feel quite overwhelmed,” he says.
If you use a financial planner to help you develop a financial plan, it becomes easier for you to see the bigger picture.
“It always astounds me that people put a great deal of planning into things such as an annual holiday, but the same people don’t put as much effort into drawing up a financial plan for their lives,” Fourie says.
For example, a City Press reader recently wrote in to say he had R1 million to invest. He wanted to know where to invest the money for the maximum growth on his investment.
“This is not sufficient information to properly advise the reader. We have no idea if he has dependants or if he is single. Does he have life insurance in place and has he started saving for retirement? More importantly, it does not make sense for him to invest the R1 million if he is sitting with debt he has not paid off yet,” says Fourie.
A financial planner can only provide optimal advice if they fully understand your financial situation – that means providing all your information.
When you consult a financial planner, you will be asked for the following:
. Your income and expenses or your budget.
. Your current assets and liabilities – this would include assets such as property and liabilities such as your debts.
. A list of all the current financial products you own, such as life assurance policies, funeral policies and investments.
. Your current and future financial needs, depending on your life stage. For example, your marital status and whether you have dependants or not.
. Your planner or financial adviser will also take into account any employment benefits you enjoy, such as group life assurance and medical aid benefits.
As you draw up your financial plan, other factors that will be taken into consideration include:
. Saving for your children’s education.
. How much money you need to save for retirement so that you don’t have to dramatically change your lifestyle when you stop working.
. Your ability to earn an income is your greatest asset. You need to have income-protection insurance so that you are financially covered if you get retrenched or need to resign for a short period of time.
. Dread-disease cover – if you have health issues and end up with, for example, cancer, the medical costs are incredibly high and often not covered fully by your medical aid.
. Disability assurance – if you sustain an injury and, for example, a rock-climbing accident results in your losing the use of your legs, then disability assurance covers costs such as a wheelchair, renovations to your home to accommodate the wheelchair and physiotherapy in the long term.
Educating the youth about money management
This is a topic Fourie is particularly passionate about. He says parents often seem to think that providing their children with pocket money is sufficient. However, he encourages his clients to be more practical and hands on when teaching their children money-management skills.
“I had a friend in high school whose father came home one day after withdrawing his salary in cash. He stacked the money in piles on the dining room table and showed his family exactly how the money was being spent,” says Fourie.
He encouraged his children to be financially savvy by buying the board game Cashflow by Robert Kiyosaki (author of Rich Dad, Poor Dad). The aim of the game is to get out of the rat race.
“Another old saying is that even if you win the rat race, you are still a rat. Youth today need to stop competing with the Joneses – that is not the answer to a financially healthy, happy life.
“You are more likely to end up in debt than anything else,” he says.
He advises that first-time earners should get off to a good financial start by saving at least 15% of their salary towards their retirement. The next step is to build up an emergency savings fund equal to two or three months’ worth of expenses, and then focus on short-term savings goals, such as saving for a deposit on a house or car.
“When you are young, your biggest asset is your ability to earn an income, so while you might not need life assurance, you should take out a disability and income-protection policy,” he says.