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You may feel that you are on top of your finances and are managing your day-to-day money, but how robust is your financial plan? Are you on track for retirement and what protection do you have if life turns upside down?
At the age of 41, Lucky is determined to save and invest towards his future. Apart from having both a company provident fund and his own personal retirement annuity, Lucky has put away R123 000 in discretionary savings through various exchange-traded funds and a share portfolio.
Liberty financial adviser Tony Buys’ concern, however, is that Lucky has not put any money away for emergencies or any protection if he is unable to work.
“The younger a person is the more aggressive they can be with their financial investments. However, Lucky should not forget that there may be sudden emergencies that need immediate attention.”
Lucky has no children, but he does have financial responsibilities to his parents and siblings. They would suffer a financial loss if he were no longer able to provide.
“Moreover, even for someone who had no financial dependents, one has to consider what would happen if he lost his job or became incapacitated. For how long would Lucky be able to remain afloat?” asks Buys, who adds that the type of work environment you are in is an important factor that you should consider when planning your finances.
“There are key questions you must always ask yourself regarding this. How viable and sustainable is the business you are in? What are the health risks you are exposed to on a day-to-day basis at work? When I looked at this with Lucky we found that being in the IT environment can be challenging as you are only as good as the last project that you completed. As such, he can never be too secure’, says Buys, who recommends that Lucky first look at the cover offered by his employer and then find where the gaps remain.
“Rather than duplicating what his employer offers, Lucky should consider top-ups in areas already covered by the employer or other existing investments and policies. This would include a retrenchment protector, income protector and a policy waiver to cover his policies should he be retrenched.”
As most employers do not offer dread disease/critical illness cover Lucky should consider this important cover, which would provide some financial relief if he were to be diagnosed with a dread disease. When reviewing his life cover, Buys says Lucky needs to ensure that there are sufficient funds to settle his debts, but also to provide for some financial support to his extended family. He could include family funeral cover as well as medical protection, which covers family medical aid contributions for 10 years should he pass away. This gives Lucky the ability to take care of his family’s health requirements even when he is no longer around.
“Lucky should use the opportunity he has now before he starts his own family to get his finances in order. The more you have saved for emergencies and invested for retirement before starting a family, the easier it will be to navigate the financial commitments of raising children.”
For Lucky, the financial needs analysis was useful in understanding where his gaps were.
“I have realised that I could do more when it comes to investing. But what makes me happy is that most of the basic financial needs are already covered with the exception of the emergency fund, which I need to focus on [as soon as possible].”
