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HOW many people are aware that the drop in interest rates since the start of the downward cycle affect their financial plan?
Your financial plan covers a wide variety of money topics, including budgeting, expenses, debt, saving, retirement and, as importantly, life insurance. Understanding how each of these work together and affect each other is important for laying the groundwork for a solid financial foundation for you and your family.
One's financial goals change over the years due to changes in lifestyle or circumstances. These may include inheritance, marriage, birth, house purchase or change in job status. It is vitally important to continually revisit and revise your financial plan in order to stay on track with your financial goals.
Financial planning involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan on how you can meet your goals - given your current situation and future plans. This should be reviewed on an ongoing basis. Financial planning cannot change your situation overnight: it is an ongoing, lifelong process. You are the focus of the financial planning process and as such, the results you achieve from working with a financial planner are as much your responsibility as those of the planner.
An issue that needs to be highlighted is the importance of i nsurance as this should be both a significant and strategic component of your plan so that your family is protected in the event of your premature death. It is vital to know and understand exactly how much cover is needed. How much would your family need should you stop working? Take into consideration your pension and the extra benefits of insurance. Make sure your pension will be enough to live on comfortably after you retire and establish whether there will be benefits for your spouse when you are no longer around. Of equal importance is the need to take care of your own long-term welfare - for instance, how would you take care of yourself should you fall ill? Would you like to live in a frail-care centre or would your children take care of you?
Everyone reading this column should rethink their financial planning very seriously . I often consult with people who think they have taken everything into consideration and covered all the bases, only to find that something essential has been overlooked. It is only once you understand your present and future economic needs that your financial plan can be considered sensible and organised.
Remember that events beyond your control, including inflation, volatility in the stock market and variable interest rates will affect your financial planning results. Make sure you see the whole picture. - Do not focus on just one aspect of your plan to the negligence of the others.
l Bryan Hirsch is a director of Pioneer Financial Planning. Visit www.pioneerfinancialplanning.co.za