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Planning your financial legacy



There is a wonderful English saying that goes ‘failing to plan, is planning to fail’. You can see this saying in action in South Africa’s shocking retirement savings statistics: only six in 100 retirees, those who draw up and stick to their financial plans, manage to save enough to maintain their lifestyle during retirement. The remaining 94, those who fail to plan, end up relying on family, friends or the meagre state-funded old age grant to get by.

The formula for a successful retirement is so simple that you would expect better outcomes. All you have to do is save around 15% of your monthly income from the time you start working and resist using this money for any reason other than funding your retirement. Sadly, many South Africans withdraw and spend their formal retirement savings whenever they change jobs, making it much harder to achieve their savings goals in the time they have left.

You can avoid this mistake by having a financial plan in place. A financial plan is a roadmap that sets out how you and your family will achieve your financial goals, with a comfortable retirement often being top of the list. You should think of your financial plan as a non-negotiable first step towards leaving a financial legacy for your family. Over time, your financial plan should be built up to include all aspects of your financial person, including estate planning, risk planning and retirement planning.

Here are four tips to help you whip your first financial plan into shape.

  1. Assess your household’s budget and financial health. Your current financial position will influence many of your financial planning decisions, so you need a good idea of how much your household earns and spends. You should cut any unnecessary expenditures to maximise the amount you have left at the end of each month. This is also a good time to list any debt, insurance and investment products you are already paying towards and make sure you understand how each of these products work.
  1. Consider your household’s future financial needs. Now that you know what your month-to-month financial situation looks like, including your assets and liabilities, you can start thinking about your short, medium and long-term financial goals and write them down. Each household will be different, but you might have goals such as paying off a house by age 55; retiring at age 65 with 80% of your pre-retirement salary; putting two children through university; replacing your car twice in retirement etc.
  1. Does your financial product basket get you to your goals and what else do you need to do to get there? You can now determine how effectively your existing financial products are or will be at meeting your stated goals and identify gaps that you will have to fill. You might, for example, work out how much you need to retire comfortably and then interrogate your latest pension fund statement to see if you are on track.
  1. Seek help when you need it. Financial calculations can be tricky, especially when comparing one product against another, figuring out how much you need for a retirement that starts 20 or 30 years in the future or working out the tax consequences of certain decisions. There are many useful ‘how to’ articles and retirement calculators online, failing which you could either approach the financial product provider or consult with a professional financial planner.

The Financial Intermediaries Association of Southern Africa (FIA) believes in financial advice and financial planning as being indispensable tools to improve consumers financial outcomes. As such, we encourage you to take the first step on your journey to financial independence by drawing up and implementing your own financial plan. A financial plan is non-negotiable, if you want to leave a financial legacy for future generations.