Financial planning: What you need to know

To best prepare for your future, proper financial management is crucial. For many of us, the term “financial planning” is a far-removed principle that we know we ought to subscribe to, but we simply don’t get around to it. For others, the idea of having money left over to save towards future plans seems unrealistic. But according to financial planners, it’s a necessity.

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The Financial Planning Institute (FPI) of Southern Africa notes, “Having a detailed financial plan provides you with a strategy to make practical financial decisions in all aspects of your life. Sticking to a plan allows you the best possible chance of achieving your life goals and ensuring your long-term financial security.”

Financial planning is also about peace of mind - knowing that if something unforeseen happens, you and your family will be provided for, adds Will Keevy, insurance expert from Insurance Busters.

Why is financial planning important?

Tapuwa Mwashita, insurance relationship specialist from Insurance Busters, says, “Everyone has wants and needs in life, but most people don’t have the financial means to meet them. Financial planning gives people the education necessary to prioritise their life goals, and the tools to start making these goals a reality.

“In South Africa, a lack of financial education and a heavy reliance on debt means that millions of people fall into the trap of misusing their finances. Either they don’t monitor their money usage, or they fail to make solid goals for their money,” says Mwashita.

Keevy notes that we, as South Africans, are extremely underinsured for our risk, and on top of this, we don’t have a culture of saving.

“Instead of getting financially educated, people tend to avoid the issue. But the reality is that the only way to create and safeguard our wealth, and our legacy, is by taking planned steps and making the correct financial decisions.

“Take for instance retirement planning. Less than 5% of South Africans can retire on what they currently earn. The result is that their children need to help look after them with money the children could have saved for their own retirement - and so the cycle continues,” says Keevy.

The financial planning process is dynamic. As you move through the different stages of your life, your goals and needs will change, and your financial plans will need to alter too.

According to Mwashita, financial planning allows people to:

1. Make better-informed decisions about their money. There are hundreds of insurance companies, investment houses and financial service providers offering thousands of different products. It’s impossible to guess which product is the best for an individual. Having a proper financial plan helps people to understand which products they really need and how to get them.
2. Have greater financial security. Financial planning takes a person’s risk into account by asking hard questions such as, “What will I do if my car breaks down today?” Or, “How will I take care of my family if I become disabled?” A financial plan can account for such risks and help people make provision for unexpected events.
3. Use their money more efficiently. Should you open a savings account or a unit trust fund? Should you take out a funeral policy or use credit to pay for a funeral? By having a financial plan, you can ensure that the money you have, irrespective of the amount, is working in your best interest.

Who offers financial planning?

The banking services industry is known for offering guidance in this area.

Standard Bank offers a financial advisory service that assists consumers with comprehensive financial planning, including product recommendation.

“It’s important to review your financial plan regularly to ensure that your goals are on track, and adjust it as your circumstances change,” Standard Bank explains.

Nedbank offers a suite of services and products that include education planning, personal retirement planning, estate planning and investment planning, among others.

Alternatively, you can use the services of investment houses such as Allan Gray and Old Mutual, or independent financial advisors. If opting for the latter, be sure to check that the advisor is a registered Financial Services Provider.