Three Minute Money Matters #1

What is financial planning?

Financial planning is the process of a) protecting wealth as well as b) creating wealth with the aim of securing the future financial well-being of you and your loved ones.

We protect our wealth by ensuring that we are adequately covered in case of the following events:

• Temporary disability
• Permanent Disability
• Death
• Suffering from a dreaded disease
• Loss of- or damage to our property (Short-term insurance)

We create wealth by ensuring that we accumulate enough funds for the following events:

• Retirement
• Tertiary education
• Other financial goals e.g. a vacation or larger home

It is not a once-off event but requires regular adjustment as your circumstances change.

A Financial Advisor will assist in compiling your unique financial plan (FNA) with short-, medium and long-term goals.

A Financial Needs Analysis (FNA) is a holistic evaluation of your current and future state by using past experience to forecast future asset values, cash flow and withdrawal strategies. Your current assets, liabilities and future retirement and estate objectives will be taken into account in developing this plan.

Estimates of asset growth are used to determine if your financial goals can be met going forward, or what changes need to be made to ensure that they are.

Features of a Financial Plan

Comprehensive Risk Management Strategy:
This Strategy includes a full review of life, disability and dreaded disease insurance, including property and catastrophic coverage. All risks are identified and coverage are provided.

Personal balance sheet:
A statement of assets and liabilities serves as a measure of future progress towards objectives and goals.

Retirement strategy:
This plan includes a strategy to achieve your retirement objectives separate from other financial objectives. A plan for accumulating your retirement wealth and a plan for lifetime distribution should be included in the strategy.

Estate Planning:
Arranging for the management of a person’s estate with attention to the reduction of taxes and costs, including wills.

Financial goals:
Financial goals should be measured and trackable. A financial plan is based on a person’s clearly defined objectives, including the funding of a holiday, education for the children, buying a larger home, starting a business, retiring comfortably or leaving an inheritance.

Budget Analysis:
An income and spending plan guides decision making.

Long-term investment strategy:
A personalised asset allocation based on a risk profile and specific investment objectives.

Tax reduction:
The identification of permissible ways to reduce tax on personal income. The identification of tax-favoured investments that can minimise taxation of investment income should be included in the plan.

Disclaimer:
This is not to be used as financial advice, and always consult with your financial advisor before making any decision regarding pension fund withdrawals or transfers. These tax implications are subject to change.