We spoke to Head of Advice at Old Mutual Personal Finance, Lizl Budhram, and asked her for her insights into what you need to consider when assessing your financial situation to help create a comprehensive overview of your finances.
Why is it important to have an overview of your financial situation?
Understanding your financial situation helps you make informed decisions when it comes to your money. If you don’t get your finances right, you can’t get your future right. And because this is so crucial, financial decisions cannot be taken lightly.
What things do you need to consider and include in your assessment?
To get a full picture of your finances, start by asking yourself a rather tough question: “Who is in control of my money?”
Then ask yourself: “Do I work to enrich my life and do I have the peace of mind that my financial future is healthy? Or do I work just to service debts and pay monthly expenses and have a rather apprehensive view (or possibly no view at all) of my financial future?”
To help answer these questions, look at your current financial reality and work out what you’re currently spending your money on, what your total debt obligation is, what assets you have built up and what your short- and long-term goals are.
I don’t know where to start – what should I do first?
1. Start off by drawing up a monthly budget. Knowing where your money is going to every month is a critical step. You can use the free Old Mutual budgeting tool available here to get started.
2. Pay off your most expensive debt first. In other words, reduce the debt that costs you the most interest, such as your store cards.
3. Now take the time and energy to give an in-depth consideration to your long-term goals. This is a very important step in the financial planning process that is unfortunately often missed or skipped. Remember that saving for retirement is your most important long-term savings goal. Starting to save early gives you a longer period in which to invest and generate investment growth, which means you can take advantage of the power of compound interest.
4. For the medium term, it’s important to work towards building up an emergency fund by saving something each month. This will avoid having to go back into debt if unexpected situations and expenses arise.
5. Now you’re ready to plan for short-term goals. Maybe you plan on travelling in the next few months or perhaps you’d like to buy a new car.
6. Do not forget to ensure that you are protected against loss of income due to death, disability and critical illness. Income protection is a critical part of being financially empowered. Your investments portfolio and plans will probably run into trouble if one of these unplanned events occur and the necessary plans and provision are not in place.
7. The final step in a financial plan is to draw up a valid will. Your will is a record of how you want your assets to be distributed among your loved ones and how your liabilities should be paid for.
How can a financial adviser assist me with this?
An accredited financial adviser can help you get to grips with your financial situation and create a financial plan that’s designed to suit your money realities and help you achieve financial freedom.
Crafting a successful financial plan requires a close and committed partnership between you and your financial adviser. The advice process is structured to understand and analyse your needs and to identify shortfalls. Your adviser will help you work out how to address those shortfalls and recommend and implement appropriate solutions in line with your financial reality and goals.
Proper financial advice ensures you maintain a balanced perspective and minimises the risk of rash decisions that could derail your holistic financial plan.
Once I have an overview and a plan, what do I need to do next?
The most important next step is to stick to your plan. Market volatility can lead people to make emotional decisions that can have a detrimental impact on their financial plans. At least once a year, revisit your plan with your adviser and evaluate progress and make any necessary changes. Make sure that you speak to your financial adviser when life-changing events happen, such as a marriage or divorce.
What is the one thing you advise me to do today that will help me work towards financial freedom?
Partner with the right people to get great advice. And yes, today’s the day!
For more valuable advice on how to create wealth and manage your finances to meet your goals, visit: www.oldmutual.co.za or get your tickets today to the upcoming Wealth of Wisdom workshop and join Nandi Madida as she explores her wealth journey and shares cross-generational wealth tips.