PHOENIX FINANCIAL PLANNING SERVICES “12 Keys to Improve the quality of life ”
The keyword in “financial planning” is “planning”, indicating that the process which ought to be dynamic never ends. At Phoenix Financial Planning Services, we believe in financial planning for the present, the future and the next generation. In this blog, we discuss 12 keys to discover financial security.
1. Goals, Needs and Objectives
The best place to start is to understand your overall purpose in life. Your purpose is your primary driver in determining your objectives and goals. Needs are considered “must-haves” and therefore deemed non-negotiable. Objectives and goals should be divided into short, medium and long term. The following three aspects are essential to consider during the goal-setting exercise.
- Achievable
- Measurable
- Reviewable
2. Estate Planning
Estate planning appears last on the list of priorities for most financial planners. We believe that having a valid Last Will must be prioritized since the service is typically free and will aid in uncovering needs and objectives. For example, you will discover financial needs like estate duty, inheritance, provisions for Testamentary Trusts, etc. Unfortunately, most people omit to provide for essential documents like a power of attorney.
3. Cash Flow
A cash flow analysis is the next logical step where you will need to understand your income in relation to expenses. In other words, what amount of money is coming in and going out? The cash flow analysis will help you understand how well you are managing your cash position.
It is common for people to improve their cash flow position before addressing other needs and objectives of the financial plan. Ideally, you should review your cash flow position periodically to increase your income and reduce your expenditure. A critical consideration missed by many advisors is the difference and impact of gross and net income. During the budgeting process, we recommend that clients put their expenses in two baskets. One basket for “must-haves” like rent, home loans, groceries, healthcare and the other basket for “nice-to-haves” like entertainment, dinning out, holidays, etc.
4. Statement of Financial Position
A statement of your financial position, also known as a balance sheet, is a schedule of your assets and liabilities. The difference between assets and liabilities indicates your net worth. We advise clients not to be concerned if their liabilities are more than their assets, as this is the case for many people starting. Therefore, your financial plan should provide for increasing your assets and decreasing your liabilities over time.
5. Debt Management
Debt is a necessary evil, and we must acknowledge that not all debt is “bad debt”. Debts like home loans build equity and can boost one’s credit score. On the other hand, debt with high interest rates like credit cards and personal loans erode capital. A feasible plan must be implemented to settle these debts as soon as possible. It does not make sense to earn less interest on savings or investments than interest rates charged on credit cards, personal loans and overdrafts.
6. Emergency Fund
Life happens, for example, retrenchments, unforeseen healthcare expenses or motor vehicle repairs. Emergency or contingency funding is crucial to be void of tapping into long-term savings. We recommend that a minimum of three (ideally six) months of living expenses is set aside in an emergency fund.
7. Risk Management
All health and financial risks must be identified, and mitigating plans implemented. The most common types of risk are death, disability (temporary and permanent), dread disease, sickness benefit, income replacement, etc. However, many financial planners omit to evaluate other risks like healthcare, post-retirement healthcare funding, personal insurance like homeowners, household contents, motor vehicles, all risks, etc. It is also essential to include benefits that may be provided by your employer, like group life and retirement funding. Risk management and mitigation planning is, therefore, a comprehensive process requiring due diligence and meticulous planning.
8. Donations
Donations and giving to those in need has spiritual and social responsibility significance. Yet, in many cases, this “expense” is omitted in the budgeting process and income tax planning. We recommend that clients identify organisation/s they would like to support financially that can provide tax-deductible certificates.
9. Investment Planning
Although savings for short-term goals is part of the financial plan, investments are typically long-term savings plans for retirement, education, special goals, transfer of wealth, etc. Therefore, in understanding your investment needs and goals, it is essential to ask questions like what, when, how, and understanding your investment risk profile. In other words, are you a conservative, moderate conservative, moderate moderate aggressive or aggressive investor?
Other vital considerations on the investment journey investment diversification, in other words, investing in different types of assets to spread your risk.
Evaluating your investment portfolio would include understanding investment performance, earnings, growth, fees and costs, adequate diversification and assessing ongoing risk appetite.
10. Income Tax Planning
Income tax planning is an essential component to maximize tax savings relative to financial planning objectives and goals. For example, saving for retirement via a retirement annuity is more tax-efficient than investing in Unit Trust or Bitcoin.
11. Communication and Record-Keeping
Communication and record-keeping of advice are imperative to measure key results in relation to goals and objectives. Record-keeping will also highlight progress in terms of needs that are partially, fully address, or will be addressed in the future.
12. Implementation Plan
Finally, every plan must be implemented, and the financial planning process is no different. Roles and responsibilities must be allocated between the financial planner, the client and other responsible parties such as accountants and attorneys.
Five important questions?
- Have I left sufficient funding for my loved ones if I die?
- What provision have I made if I become disabled?
- What are my plans to be void of dying intestate?
- How long must I work before I can retire?
- What is my plan to enjoy the same or better standard of living in retirement?
Author: CLAYTON SAMSODIEN
Group CEO
Phoenix FSG (Pty) Limited
DISCLAIMER
This blog does not constitute financial advice. The content is intended to provide information for educational purposes. We recommend that interested parties contact Phoenix at the contact details listed or their financial advisors for a comprehensive review and needs analysis followed by the required record of advice.”
