Get a financial needs analysis

What is a financial needs analysis?

Posted  March 3, 2014

If you want to get serious about financial planning then you are going to need a financial needs analysis. Never fear – it is not as complicated as it sounds. Here is a beginner’s guide to a financial needs analysis.

A needs analysis is carried out by a qualified financial planner to ascertain the current state of your finances and your future financial needs. It also ensures that you are not sold any particular financial product without an overall assessment of your finances and existing financial portfolio. For example, 20 years ago, a salesman would have been able to sell you a life insurance policy without any idea of what your expenses were or how many other life insurance policies you already had. He would walk away with a hefty commission and you would be none the wiser! Zoom forward 20 years to the present and the financial services industry has changed dramatically. The following factors now have to be taken into account when you consult a financial planner and these are incorporated into your financial needs analysis:

  • Your income and expenses or your budget.
  • Your current assets and liabilities - this would include assets such as property and liabilities such as your debts.
  • A list of all the current financial products you own such as life insurance policies, funeral policies and investments.
  • Your current and future financial needs depending on your life stage. For example, your marital status and whether you have dependants or not.
  • Your planner or financial adviser will also take into account any employment benefits you enjoy, such as group life assurance and medical aid benefits.

Once he or she has all the above information, your financial planner will then be able to make recommendations on your investments and long-term insurance needs including:

  • Saving for your children’s education
  • How much money you need to save for retirement so that you don’t have to dramatically change your lifestyle when you stop working.
  • Your ability to earn an income is your greatest asset. You need to have income protection assurance so that you are financially covered if you get retrenched.
  • Dread disease cover – if you have health issues and end up with, for example, cancer, the medical costs are incredibly high and are often not covered fully by your medical aid.  
  • Disability insurance – if you sustain an injury, for example a rock-climbing accident results in you losing the use of your legs, then disability insurance covers costs such as renovations to your home to accommodate a wheelchair, the cost of a wheelchair and physiotherapy in the long term. If you are unable to work your policy will also replace all or part of your income. Note that you will need to be aware that disability policies are either sold with a lump sum amount or an income component.

While this may seem like a lot of work, it ultimately protects you from being sold products you don’t need and possibly cannot afford to pay for. It also ensures that your family is financially provided for and that your finances are in order.

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