I often get asked, “Where do I start? Where do I start with my finances? Is a budget more important than a will? When do I need life cover? And must I have retirement savings if I don’t have emergency savings?”
Financial planning is like most things in life – it’s comprised of building blocks. You start from the bottom and start building upwards. So what are the basics? The most basic is an up-to-date will; medical aid and risk cover (life, disability, severe illness and income replacer). An up-to-date will is imperative, and many do not realise: if you die without an up-to-date will, the State will manage your estate as if you had died interstate. They will appoint an executor and will divide your assets as per the Act. The process is long and impersonal and your dependents are reliant on the State. Risk cover is also important and the amount you require will depend on how many dependents you have, how much cover you require and how much you can afford.
The next building block (and it is just as important!) is savings: short-, medium- and long-term savings. Short term savings can assist you with cash flow for unexpected expenses. This can be saved in a savings or money market account. Longer term savings such as an investment plan is a 10 year investment. This money can be saved in unit trusts and used towards longer term goals such as education or another property. For retirement savings I would recommend a retirement annuity. Advantages being the tax deduction of the retirement annuity premium and there is no tax payable within the fund.
Once one has the basics in place, one can invest in: additional voluntary savings, offshore investments, additional properties and alternative investments. Everyone’s basics will look different depending on our different needs, financial circumstances and preferences. Revisit your basics and ask yourself the question, “Are the foundational building blocks in place? Are there a few gaps? If so, don’t wait until a rainy day to fill them. Get going on that now!
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