Over the past weeks, Personal Finance has been publishing two series of articles: One based on the recent Retire Right seminars hosted around the country by Personal Finance and Old Mutual; and the other based on the Wisdom financial skills programme compiled by the University of the Western Cape and Saambou Bank.
Both series have been aimed at educating readers in two important areas of financial planning: The need to make adequate provision for retirement and, secondly, to control spending. If one considers how few people retire with sufficient financial resources and how many people fall prey to excessive levels of debt, both issues should not be the preserve of publications such as Personal Finance, but should be taught in schools.
Wisdom is available for businesses to run as an education programme for their employees. Other organisations, such as stokvels, burial societies, churches, social clubs and non-government organisations running community-based projects, can also avail themselves of the programme.
Wisdom, which was officially launched at drum-beating events around the country last month, covers a wide spectrum of personal finance, including budgeting, sensible buying, cash versus credit, the various types of finance, insurance, buying a home, the consequences of borrowing and the impact of interest.
The programme consists of a two-day workshop, a film, a board game and a set of posters. If you want to know more about Wisdom, contact Esther van der Walt at Saambou, on telephone (012) 421 5620 or e-mail her at [email protected]. It will be well worth the call.
On the issue of retirement, Mike Harper, the executive general manager for private wealth at Old Mutual, who summed up at the close of the Retire Right seminars, made 10 points which I believe are worth repeating.
- Point One:
If you have done nothing so far in planning for your retirement, start from today - whatever your age. As Harper points out, it is better to start late than never. The main advantage of starting early is that wonderful thing called compound interest, where the growth in your investments attracts further growth.
- Point Two:
Keep planning. Harper says a plan is like a photograph. It is a moment in life. Life changes and so should your plans. You should constantly be re-assessing how much capital you need for retirement and taking the long- term view.
- Point Three:
Develop a long and fruitful relationship with a qualified financial planner or broker. No matter how much we read or study, most of us need assistance. If you develop a relationship with someone who knows your needs and long-term goals, he or she will be better placed to help you retire right.
- Point Four:
Never raid your retirement savings. Every rand that you steal will have a significantly adverse effect on the quality of your life after retirement.
- Point Five:
Do not take high investment risks with your retirement savings either before or after retirement. Diversify your investments to spread your risk.
- Point Six:
Be debt-free by the time you retire. Again, Harper says this is the value of planning. You need to plan your finances to ensure you do not need to use your retirement capital to pay off a mortgage bond or a car loan. Paying off debt at retirement with your retirement savings is another form of raiding your savings.
- Point Seven:
Don't rely on a company pension fund alone to provide you with sufficient retirement capital. You will need other savings to top up your retirement fund if you want to sustain a reasonable lifestyle.
- Point Eight:
Preserve your retirement savings if you change jobs. Don't treat the money as a windfall to be spent on luxuries.
- Point Nine:
Take account of the extras. Build up an emergency fund to take care of such things as rampant medical inflation.
- Point 10:
Use tax-advantage investments to build your retirement capital. The tax incentives are there to encourage retirement savings, so use them.
Finally, stimulate the process of educating people about financial management by encouraging your children and/or friends and colleagues to plan for retirement. They will thank you in the end.