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What is financial planning and why do you need it?

28 August 2014
3 minute read

do you need financial planning

The 2014 Old Mutual Savings and Investment Monitor revealed that as much as 60% of respondents did not consult a financial adviser because they felt that they didn’t have enough money. Unfortunately this is a common misconception – you don’t need buckets of money to consult a financial planner. In fact, not only should you regularly consult a financial planner but a carefully considered financial plan should guide the many financial decisions you make daily and monthly.

What is financial planning?You consult a financial planner to help you manage the money you have so that you can afford the lifestyle you aspire to.

Financial planning basically means planning and organising the way you manage your money and your savings so that you: 

  • Don’t run out of money.
  • Don’t find yourself over-indebted.
  • Are able to provide for your family financially if you die.
  • Are able to protect your most important asset – your ability to earn an income.
  • Can enjoy the standard of living you aspire to, both now and in your retirement years.

You must understand that a financial plan is not something that can be drawn up in one day to magically solve your money problems. Your financial plan must be tailor-made to suit you and is a plan of action designed to help you achieve your goals realistically over a period of time. For your financial plan to succeed it must be fluid and you should have ongoing consultations with your financial planner to adjust the plan as your circumstances change.

When you consult a financial planner, these are some of the steps you will have to think about:

  • Set your financial goals. These could include goals for the short-term (pay off your overdraft), the medium-term (a holiday overseas) and the long-term (your child’s tertiary education or your retirement savings).
  • Draw up a budget that reflects your income and expenses, including a plan to aggressively pay back any debt you might have. Remember that once you draw up a budget, you need to stick to it. Constantly revisit it so you stay on track.
  • Get the whole family involved! Discuss the household budget openly so that your children are aware of how money should be managed and why you are making certain financial choices. This will teach them to manage their own money in the future.
  • Get your legal documents in order, make sure your will is up-to-date and ensure that your dependants will be financially provided for when you die. This is the estate planning process and is a very important aspect of financial planning.
  • Has your car broken down for the umpteenth time? Or maybe you need to fork out the excess for an accident? Either way, it’s an emergency… who are you going to call? When you start saving, your first goal should be an emergency fund. Save until you have a kitty equal to three to six months of your salary after tax. This will help you avoid going into debt unnecessarily. Remember to top up your emergency fund if you dip into it.

If the idea of a financial planner sounds scary, you can start the financial planning process on your own and then approach a financial planner to help you fine-tune your plan.

Why should you use a financial planner?Often people are intimidated by their finances and find it easy to lie to themselves about how they manage their money. This is where a financial planner comes in. A good planner is also qualified to help you draw up a financial plan by carrying out a financial needs analysis.

Watch out for more blogs guiding you through the process of choosing a financial planner and managing your financial plan over the years.

“Financial fitness is not a pipe dream or a state of mind. It's a reality if you are willing to pursue it and embrace it.” – Will Robinson.

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