Gerrit Viljoen, a certified financial planner and founder of Ultima Financial Services, discussed the importance of planning to meet your lifestyle goals at a meeting of the acsis/Personal Finance Financial Planning Club this week.
Financial planning is a crucial activity for any household that wants to secure its financial future, Gerrit Viljoen says. Personal financial planning is the organisation of your financial and personal data to develop a plan that will help you to effectively manage your income, assets and liability to near- and long-term goals Viljoen adds financial planning is "looking at looking at the future and bringing it back into the present while you can still do something about it".
He warns you will struggle to achieve your lifestyle goals and objectives without some form of planning.
Growing awareness
Viljoen says there has been a change in the demographics of consumers who seek financial advice as awareness of the benefits of financial planning has grown.
Not too long ago, the typical age of the average person seeking advice from financial planners was between 55 and 65. Now many planners are seeing a significant increase in younger people seeking advice, Viljoen says.
Young people are becoming aware of the need to save and accumulate investment capital from as early as possible in their working lives.
The need for good financial advice has become greater as the financial services environment has become more complex, Viljoen says.
South Africans have changed the way they think about financial planning, he says. These changes include:
- A move away from being consumers to becoming better savers.
- More people feel that a retirement fund will generate sufficient retirement income.
- South Africans devote more of time to financial planning issues.
- Many want a relationship with their financial planner and are willing to pay a fee for quality advice.
Life after retirement
Viljoen says because people are living 20 to 25 years beyond the age of 65, a happy and financially independent retirement is no longer a given.
A financial adviser can help you understand how work has (and has not) fulfilled you and what your retirement needs to look like in order for your life to be satisfying.
The adviser can put together a solid financial plan that is geared to meeting your financial needs in the future.
Consumers are increasingly looking for ways to re-route their energy after they retire, Viljoen says. Some examples of this re-routing are:
- Finding a better balance.
Most retirees get bored having fun all the time. Adjusting your retirement schedule to include, for example, sport or hobbies, charity work and part-time consulting, allows you to enjoy life and still make money.
- Retiring to a new career.
Some retirees receive a pension and make more money in a new career.
- Taking a retirement test.
Taking an extended holiday with your spouse and doing the things you would like to do in retirement will help you plan your time in retirement better, or perhaps even lead you to postpone retirement.
Lifestyle financial planning plays a big role in figuring out what life in retirement will actually be like, Viljoen says.
Some key questions to ask yourself concerning life after retirement are:
- Where will you live?
The answer to this question affects housing and living costs.
- What will you do?
Will your anticipated activities in retirement add to the income or expense side of your budget?
- How will you live?
This helps determine the simple or extravagant lifestyle that you wish to lead.
- How will your health hold up?
This question impacts on your budget in retirement in two ways: it determines whether or not you will be able to work and how much you will need to pay for your medical expenses.
- How long do you expect to live?
Viljoen says tables issued by life assurers show the average life expectancy of the average South African. These figures may not apply to you, so it is best is to plan as though you'll live to 95 or 100 years, he says.
It is never too soon to discuss the factors that can influence your retirement income needs, but you need to address these questions at least five years before you retire, Viljoen says.
The benefits of creating a financial plan include:
- Protection against financial risk;
- Maintaining a balance of capital and income;
- Managing your cash flow with due care;
- Ensuring the value and growth of your investments and capital;
- Legitimately minimising your tax burden;
- Achieving financial independence at retirement;
- Providing financial security for your family and ;
- Establishing regular planned reviews of your finances.
What a financial planner can do for you
Just as a good doctor spends a lot of time listening and getting to know and understand a patient's health condition, so too must a financial adviser take the time to learn your financial position, explore your financial goals and find out what you want to achieve in life, Viljoen says.
A comprehensive or holistic approach to financial planning provides for an initial analysis of your total financial wellbeing - now and in the future.
Viljoen says that apart from looking at your investment options, financial planning also looks at estate planning, insurance, risk management, income and expenditure, retirement, wealth accumulation and taxation.
A financial planner helps you to achieve your financial goals, whether it is to buy a home, save for your children's education, invest your money, manage debt or plan for a well-earned retirement, Viljoen says.
The financial planner helps you to:
- Make informed decisions about money and how it can be used to to your best advantage.
- Develop a solid financial plan which covers all aspects of your financial wellbeing - from wealth creation to wealth protection;
- Choose products to match your specific needs; and
- Review your financial position on a regular basis and revise your financial plans when it is necessary.
Viljoen advises that you should not expect your adviser to:
- Micro-manage all your investments. Top advisers outsource this responsible function to investment specialists who manage and monitor the investment.
- Provide investment growth immediately.
- Redo your financial plan after every minor change in your circumstances.
However, Viljoen advises that you must report major changes in your financial circumstances (such as retrenchment) immediately, so that your planner can assess the impact of the event on your financial plan and lifestyle goals.
Remember, financial planning is not about money, Viljoen says. It is about goals and dreams and getting a financial adviser to help you to achieve them.