Planning has to be done for both the good times and the bad times. Provision for the more difficult times should take precedence. These include the untimely death of a breadwinner or spouse, permanent disability or prolonged illness.
Financial provision can be made for such eventualities by taking out appropriate insurance policies to cover the specific risks.
The first type of risk policy to consider is a funeral policy to provide cover for yourself and those dependant on you. Funeral policies pay out benefits quickly so that funds are available in time to pay for funeral costs.
Beyond the funeral, the needs of the remaining dependents should be addressed. Will your loved ones be able to stay on in the same house, enjoy the same standard of living and will your children be able to continue the same standard of education? Is there an up-to-date will and enough cash available to pay for possible debt and the costs involved in properly executing the provisions of the will?
For most people life insurance remains the only affordable way to provide financial security in the event of death or disability. Disability usually leads to an increase in the cost of living, while income decreases.
In the past it was sometimes not possible to buy a life policy because of a medical condition. However, life insurers have introduced new policies to assist such people to access life cover. These policies provide cover on a non-medical basis, which means no blood tests or medicals.
Typically a short waiting period will apply, or the benefits are phased in over a number of years. An example of this is a policy that provides life cover of up to R100 000 on a non-medical basis and has a waiting period of 12 months, after which it is a normal life policy, which can also be used as security. Be careful if a policy excludes cover for particular conditions, such as HIV/Aids.
Although the cost of treatment at state hospitals is affordable, or even free of charge, it is advisable to join a medical aid if at all possible, to ensure access to high-quality private sector health care.
After providing for the unexpected, financial planning should focus on cash accumulation and the building of wealth for the future. Avoid gambling and “get rich quick” schemes. If it sounds too good to be true, it is. Usually such schemes are illegal as well.
There are several safe vehicles available for savings and investments, such as bank accounts, insurance policies and collective investment schemes (unit trusts).
A small amount invested each month to a policy or unit trust can eventually grow into a large sum over time.
This is particularly true for retirement savings. It is imperative that every person makes provision for retirement over and above normal retirement funds to which he/she might belong.
Put your financial plan in writing. Prioritise your short-, medium- and long-term financial goals, as well as the provisions you have made or have to make and set time frames for each.
Synchronise your monthly budget with your financial plan. Measure your progress regularly and take corrective action where necessary. Persevere by resisting the temptation to “let go again” and pick the fruits of financial security and peace of mind.
Make use of the services of a licenced financial adviser, who will give advice based on the results of a thorough financial needs analysis. Make sure that you understand the benefits, conditions and costs involved and only buy insurance and investment products from institutions registered as financial service providers with the financial services board.
Neels Steenkamp is from Assupol Life Financial Services