Good financial planning is vital to ensuring that your financial needs, as well as the needs of those who depend on you for their financial wellbeing, are taken care of. Making sure that you cover all the bases in your financial planning could mean the difference between disaster and financial wellbeing.

Prepare a budget

The basic foundation of a financial plan is a household budget. Prepare your budget by going through your previous month’s bank statement and making sure that all expenses, including credit cards, are accounted for. Take care that any annual or quarterly payments, such as membership fees, vehicle licence fees, service costs, etc. are included. If you are making cash withdrawals and payments, keep the slips and document the expenses. Ensure that your budget includes an allocation for unforeseen expenses and emergencies.

Plan for retirement

Contributing to a monthly pension scheme through an employer will probably not provide a sufficient retirement income. Traditional thinking about the company’s pension fund being the sole old-age provider has become obsolete in the face of biting inflationary pressures. Not only has sound additional investment planning for retirement become necessary due to the effects of inflation, but people now live longer — an aspect that requires more money to ensure financial independence until death. Once you accept the need to do additional retirement planning, investment timing and strategy become of key importance.

Do estate planning

Comprehensive estate planning should consider life policies, trusts and donations, and take into account marital contracts, capital gains tax and income tax in a way that will ensure the management your financial affairs according to your wishes when you pass away. Making your wishes clearly understood in a last will and testament that is kept updated is important to the continued well-being of those you leave behind. Having a will is vital, because, without a will, one dies intestate, with very negative consequences, which include your wishes being ignored and the financial needs of your loved ones being neglected, and may even lead to assets being sold. Furthermore, there will be delays in the administration of your estate, and assets will be distributed in accordance with a set legislative formula. It also means that minors’ inheritance will be held with the Master of the High Court until they reach majority.

A valid will is one that is clearly worded, legally enforceable, ensures that your assets are distributed according to your wishes, and allows you to name beneficiaries who aren’t family members. It will keep estate administration costs to a minimum, and should ideally be drawn up in a way that avoids delays in the winding up of the estate.

Take out long-term insurance cover

Long-term insurance cover goes beyond taking out a life policy; it also includes income protection cover and cover in case of disability or dread disease. Your ability to earn an income is your biggest asset. The South African insurance market offers a variety of excellent products that provide protection in the event of temporary or permanent disability. Temporary disability is more common than permanent disability, and can cause devastating income losses particularly for those who are self-employed.

Get medical cover

Medical expenses can be astronomical and financially devastating. If you do not have a medical aid, you should consider taking out medical insurance. Gap cover, medical insurance that pays the difference between what your medical aid pays and what medical professionals charge, is also a good idea to prevent costly expenses when you can least afford it.

Take out short-term insurance

Short-term insurance protects you against the potential financial impact of unforeseen loss of or damage to your valuable assets. It is important to ensure that your short-term insurance cover caters for your specific needs. A personal needs analysis should be performed, to ensure that the cover you select is tailored to your specific needs. Ideally, your cover should ensure that your financial position is virtually unaffected by damage or loss.

Do tax planning

Get help from a trained professional to ensure that your financial plan is as tax efficient as possible. Taxation has become very complex, and you need to ensure that your financial plan takes all the applicable tax implications and tax-saving measures into account.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, financial advice. For more information regarding financial planning, please speak to your financial adviser.