Is your wealth portfolio complete?

An all too common regret that many people have in life is not having a financial plan in place.  Although this is usually thought of as a ‘requirement’ in the latter part of your life, when it can be too late, it should really be a consideration as soon as you start working. In fact, a report from The Financial Services Board (FSB)¹ supports this premise, as it found that 51% of South Africans fail to invest in financial products to ensure a sustainable lifestyle post retirement, or worse, a life changing event.

This is an extremely worrying statistic, especially if we consider the importance of financial and wealth portfolio protection management as a means to financially provide for your family - when you are no longer able to work or worse are no longer around.

One possible contributing factor to the low level of financial planning is that many South Africans are unsure or unaware of how to start the financial planning process. A further factor is the perceived complexity once they do, as they are unsure of how to manage their financial portfolio, and in particular mitigating the risks to their wealth portfolio. What should this include, what would be advisable, how these requirements may change over time and who is responsible for managing the policies – the questions are endless.

 Investing in financial products is a long term lifestyle choice, as the benefits will be reaped in the future rather than immediate gratification that comes from current spending on niceties – “No pain, no gain”.

It is for this reason, that it is becoming more common for South Africans to learn more about managing their money before making financial decisions. In fact, the FSB Financial Literacy report² found that of the South African’s sampled, 53% extensively research their options before making financial decisions.

Insurers and financial advisors are also helping this process, by assisting the financially astute to build their financial portfolios, by considering the life expectations of their clients whilst being mindful of the risks faced and the range of financial products available to mitigate those risks and ensure the desired outcome.

If we break all of the above down into chunks, there are essentially two guidelines to effective wealth creation; that of disciplined saving coupled with investing and; protecting your income, assets, liabilities and accumulated wealth against unforeseen risks.

Saving and investing are coupled, but independent, processes. Savings refers to placing part of your current income aside whilst investing refers to how these funds are utilised to generate a return, over time, which can then be used in future when no ongoing income is being received. As a result, it is fundamental to remember that saving is actually the starting point of future wealth creation, but this should not be undertaken in isolation of risk mitigation plans that protect this hard earned benefit.

Therefore, to ensure that your financial portfolio is optimally managed, you should consider financial products that protect your income and accumulated wealth, so that in the event of your death or inability to work, your family is left with a sound financial foundation to maintain their lifestyle.

So, insurance is an important risk mitigating element of any sound financial plan. Different kinds of insurance products help protect you and your family against the consequences of accidents, illness, disability, dreaded diseases and death. Life insurance is a typical example. While it is often overlooked, remember that after a lifetime of building your wealth, how will you guarantee a tax-efficient way to protect all you have worked for your family? That is one of the benefits of life insurance. In fact, this kind of life planning will also preserve your wealth by paying for funeral or medical expenses and any debts you may have incurred, leaving your estate fully intact for your family.

We all understand that money is earned through work that requires both your time and your energy. As the years go by, decisions about how you spend your money will affect all aspects of your life. If the basic principles of building wealth are followed then the plans put together will help you to obtain and maintain financial freedom and continue to build wealth for the rest of your life. Having the right outlook; understanding the major pitfalls and knowing the true cost and value of your lifestyle can allow you to have real financial and personal freedom in most circumstances, despite unforeseen events. Your life should be viewed as your most valuable asset, as your ability to maintain that lifestyle and share it with your family is of one the biggest joys life brings!

Reference/s: ¹www.fsb.co.za
²www.fsb.co.za