A financial road map to find your way out of financial pandemic blues

A financial road map to find your way out of financial pandemic blues is the most important step you can take after seeing the negative effects that another Level 4 lockdown is having on family finances.

The hardship we now witness again highlights the need for financial planning, says Pierre Muller, advisory partner at Citadel.

“You need a financial road map, something real and tangible, which allows you to see the bigger picture in mapping out your financial future that addresses unforeseen circumstances such as disability, income loss or death, as well as investing enough to retire independently.”

Muller says if you do not have a financial plan in place, think about the effect if you die or become disabled tomorrow? Will you have enough capital when you retire, or will you be dependent on other people to survive?

“A good financial plan creates financial security and ensures that all your goals will be met. It gives direction and meaning to your financial decisions.”

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Begin here

Firstly, Muller says, you have to acknowledge and take stock of your current financial status. “If you do not know where you are, you cannot navigate your way forward. Whether you are in debt or want to build your financial future, the best time to face the reality of your situation is today. Any situation can be improved upon with a clear path and time.”

Muller suggests you:

• Look at your budget to determine how any additional expense for life cover or disability cover or retirement planning will affect it.
• Realistically determine your financial goals and ask yourself if it is only life or disability cover that you need to consider or retirement or investment planning as well, or both.
• Compile a list of your assets and liabilities, including any current investments and policies and add details of the income for you and your spouse, as well as your dreams or aspirations, such as owning a holiday home or buying a vintage car.
• Consider tax implications and ask your financial planner if it becomes too complicated.
• Keep the effects of inflation on investment values in mind, particularly when planning for retirement.
• Get your partner or spouse involved in the process.
• Define your goals.

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Defining your goals

• Remember that each goal needs to be achievable within the context of your lifestyle. This will be a reality check, taking into consideration the resources available to achieve each goal. If your resources are insufficient, you will have to adjust certain goals to be more realistic.
• Goals are usually dependent on your monthly budget.
• Everyone’s goals are different.
• When you consider risk cover, determine the amount of cover needed to ensure you have adequate protection of assets to avoid financial loss.
• You have to make sacrifices to reach your goals.

Diversify

The trend among younger investors to take highly concentrated risks because “You Only Live Once” could make sense if it concentrates your energy and time to build your wealth. However, it places exceptionally high financial exposure on one idea which can lead to financial ruin and a forced financial “reset” halfway through life. Therefore diversification remains key, Muller says.

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How to find a professional financial advisor

You should find a professional financial advisor, preferably a Certified Financial Planner, to prepare a detailed analysis for you and always establish what the costs will be upfront. The advisor will be your financial coach to help you stay motivated, persevere and reach your financial goals.

“It is better to work with someone you can forge a long-term relationship with who will also assist you in identifying potential financial scams.”

Planning for retirement

Your work retirement fund will probably not be enough, while there are also asset allocation limits to consider. Muller says a financial advisor will be able to advise you on the best investments for your unique circumstances.

To save for retirement, calculate how much you are going to need to maintain a certain lifestyle over the years at different ages. Some factors to consider are the annual growth of your investments and the impact of inflation.