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Financial Planning
Saturday, April 1, 2006
How to relax

People with proper financial plans are far more likely to be financially secure throughout their lives and better able to create the future they desire for their children.

As the new year gets under way, Hugh Hacking, marketing manager of the Evergreen umbrella pension funds at Old Mutual, suggests we spend some time focusing on a long term financial plan.
“The sad truth is that less than six out of a hundred South Africans can afford to retire financially secure,” he says.
There are a few basic questions to ask yourself that will give you a good indication of where you stand and guide you on the most important issues to tackle first. Take a couple of minutes and consider the following questions:

1. Do you have a financial plan? You’ve heard it before: if you want something you need to set goals and make plans. The best way to develop a good financial plan is to speak to a suitably qualified and licensed financial adviser. If you already have a financial plan then you’re one important step closer to a financially sound future.

2. Are you saving? Actually the question should be “Are you saving enough?” Retirement savings will normally form the cornerstone of your long-term savings. As a rule of thumb you will need to save 15% of your earnings for 30 to 40 years to build up assets that will provide you with a comfortable retirement. Most of us feel “too young” to think about retirement. Delaying your savings will create a serious problem later.

3. Are your savings invested correctly? How you invest the savings is also important. There are many different types of investments. Your goal is to achieve investment returns that beat inflation over the long term. Make sure that your retirement fund shows you what the real returns in excess of inflation are for the investments in the fund.

4. How often do you review your finances? And I don’t mean staring at the zeros on the ATM slip. Just as you need to service your car to keep it in top shape, so you need to service your financial plan from time to time to make sure that it will deliver the optimum results. You should schedule a date each year to review your financial plan. Perhaps you want to do it near your birthday? Whatever time you choose, you should make it a priority.

5. Are your retirement savings in a good retirement fund? Make sure that your savings are going to a retirement fund that is working for you. Tick off how many of the following items apply to your retirement fund:
You can choose an option that is right for you.
You know what all the charges are.
You receive regular statements.
You can easily access your current balance and investment information.
You are invited to education seminars that help you understand what to do.

6. Are you protected against the loss of your income? So you’re enjoying going on holiday in that great new car. Nothing can go wrong. Think again. What happens if you can no longer work or if you lose your job? Do you have a cash reserve and are you adequately protected through disability insurance? If your employer provides cover, make sure you understand the conditions. You may need to insure yourself against additional disability types.
None of us like to consider our own mortality. You may be a perfect parent, but if you have not adequately provided for your dependants in the event of your own death, you will have undone all the good you tried to do. Check on the death benefits available from your retirement fund or your employer. Death benefits from a retirement fund can take up to 12 months to be paid out. This is to allow the trustees of the fund to trace all your dependants. To overcome this you need to provide your retirement fund with up to date information about your dependants and consider additional life assurance or funeral benefits that will pay out more quickly to tide your family over.

7. Are you investing in your health? You may be doing everything else right, but if you are too ill to enjoy the benefits of your labour then it will be no fun. Look after yourself now to enjoy the benefits into the future.

8. Are you investing in your future income potential? “Probably one of the most empowering activities you can engage in is self-development. It will create new opportunities for you and may even lead to a new career. In fact it is becoming increasingly fashionable to ‘un-retire’. You should set a learning goal each year. This will keep you young at heart, inspired, and competitive in the job market. What are you planning to learn in 2006?”

“When you have answered all these questions then the next time you relax by the pool, you will be able to relax because you are in control, not because you are blissfully ignorant,” says Mr Hacking.

Copyright © Insurance Times and Investments® Vol:19.2 1st April, 2006
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