For many of us regular financial planning falls somewhere between a visit to the dentist or spending the holidays with your in-laws. The good news however, is that putting the financial basics in place for 2013 is a fairly simple process, and as with most things, making sure you get the basics right will enable you to ultimately reach your end goal.
According to Henry van Deventer of acsis, a leading financial services company, there are three key areas that should be focused on in 2013:
1. Have a debt repayment strategy
When it comes to disposable income, the average South African household pays about 75 cents out of every one Rand towards debt.
Make a list of personal debts for 2013 – including your car, home, credit cards and in-store accounts, and then identify which of these accounts you want to pay off in 2013. Usually, credit cards, in-store accounts and personal loans incur the most interest, so starting with one of these is a good idea. Identify a monthly amount in addition to your current repayments to pay towards one of these accounts until it is paid off. Try to aim paying double or more if possible, into this account. Once the account is paid off, close it and move on to the next one.
2. Have a long-term investment strategy
Recent studies have shown that retirement planning bothers most of us more than any other financial issue. As a rule of thumb, make sure that you’re saving at least 15% of your pre-tax salary towards retirement. Generally, the tax benefits of retirement vehicles such as pension funds, provident funds and retirement annuities, allow you to get higher after-tax returns.
It is also important to remember that higher risk pays off over time. A more aggressive strategy should double your money every six years or so, while a more conservative strategy will take twice as long. For example, if you had R500 000 today and retired in 25 years’ time, the more aggressive investor should end up with around R8 million, while a conservative investor will have about R2 million.
3. Have a disaster plan in place
This entails having a will, life and disability cover in place.
- Update your will frequently to ensure that the people you care about receive the benefits you want them to and that you will pay as little estate duty as possible.
- A rule of thumb for life cover is to ensure you have enough money to pay off your debts and leave enough in place to provide a base level of support for your dependents. A minimum of four times your gross annual salary as a cover amount is a good starting point.
- Ensure you have disability cover in place to pay for your debts and provide at least 75% of your current income if something should happen to you.
“Although the above checklist could be daunting, it helps to remember that it becomes easy to manage once the building blocks are in place. If you don’t feel you’re up to it, a qualified financial planner will be able to help you put these, and any other necessary-building blocks in place. This will cost you more in the short-term, but you are very likely to be much better off in the long-term,” concludes van Deventer.