Financial planning is not something that should be done randomly or without appropriate knowledge or advice. The reason for this is that a well-planned and suitable financial plan should take various factors into account – as set out below. Only a financial expert – like a properly qualified financial advisor – can offer you the solutions you are looking for.
Financial planning for individuals usually covers any combination of the following:
- Death: The estate (estate duty, capital gains tax, liquidity), wills (feasibility), and taking care of dependants (capital and income needs)
- Disability: Temporary disability (income needs), permanent disability (capital and income needs), physical or functional impairment
- Dread diseases: Capital needs
- Retirement: Capital and income needs
Financial planning consists of the following steps:
- Identifying and quantifying all the relevant needs
- Matching current provisions against these needs (to determine shortfalls or surpluses)
- Formulating an appropriate solution in case of a shortfall and identifying suitable products
- Implementing the solution.
For a suitable and scientific analysis and quantification of financial needs, a wide range of factors should be taken into account:
- The analysis model that is used – for example, a capital depletion model or capital preservation model, or a combination of the two
- The life expectancy of the relevant parties
- The returns required to achieve the desired financial goals
- The expected returns of the various asset classes available
- Cash flow projections to test and verify assumptions
- Legislation – e.g. rules and regulations that apply to tax, estates and the marriage accrual system
- Relevant court rulings
- Various other factors.
To customise an appropriate financial solution, a wide range of financial products and factors need to be considered. These include:
- Risk products: Insurers have different limitations and exclusions – for example in terms of the countries in which your cover will not apply should you go there.
- Investments: The range of asset classes in which the client can invest includes over 600 South African unit trusts with various investment mandates. Other asset classes such as equities and cash investments may also be used. Pre-tax contributions (retirement annuities up to a certain amount) or after-tax contributions can be used to provide retirement income – but this does not apply to retirement capital requirements.