By ROSS MARRINER
Grahamstown (Makhanda) is in the midst of a terrible water crisis which experts believe could have been avoided had the authorities planned properly. Our individual financial future is no different. Many individuals do not have a financial plan and as a result could run out of money when they retire or not have enough funds available should an unforeseen event occur.
Having a personal financial plan will help you take stock of where you are now in your life, where you would like to be and what you need to do to get there. It may include goals you would like to achieve, such as buying a house, educating your children and enjoying a comfortable retirement.
The foundation of a personal financial plan is to ensure that everything remains on track should something unexpected happen to you such as dying young, becoming disabled and unable to earn a living or being diagnosed with a severe illness such as a cancer, heart attack or stroke. You should make sure that you belong to a good medical aid and have the right kind of cover in place so that, if you experience any of these devastating events, there is financial support for you and your family. You should also ensure that your personal belongings are insured to their full replacement value in the event of fire, theft, accident or any other unforeseen eventuality.
The most important component of your plan is to identify the amount you will need to save each month to achieve your short, medium and long-term financial goals. A useful way to achieve this is to prioritise your savings and only spend what remains on your living expenses.
How and where you invest is extremely important. Many suitable investments are available, each serving a different purpose. You can invest in an interest-bearing bank account, tax free investment or endowment fund to achieve short to medium term goals. For longer term goals you should contribute to a pension fund or retirement annuity. You should avoid having all your eggs in one basket, such as only investing in bank fixed deposits. It is prudent to have a diversified portfolio of investments with a portion of your savings invested in growth assets such as shares.
A crucial addendum to your financial plan is an up-to-date will. It is important to allocate your assets and belongings to your loved ones and to the organizations you would like to support in the event of your death. A well-constructed last will and testament will ensure that your estate can be wound up with the minimum amount of fuss and without your executor having to pay unnecessary taxes and death duties.
The Gift of the Givers and other concerned organisations rushed to Grahamstown to provide residents with support when their taps ran dry. Similar organisations will not be there for you if you run out of money. You need to have a plan in place to ensure that you and your family never have to worry about a financial day zero.
Rands and Sense is a monthly column, written by
Ross Marriner, a CERTIFIED FINANCIAL PLANNER® with PSG Wealth.
His Financial Planning Office number is 046 622 2891