What are the different aspects of a Personal Financial Plan?

Everyone needs a Financial Plan, but what does a Personal Financial Plan actually involve? A comprehensive Personal Financial Plan has five main  aspects: Financial Management, Investment Planning, Risk Management, Tax Planning, Retirement Planning and Estate Planning. Let me explain what each of these are, in turn:

Financial Management:
Financial Management deals with Assets and Liabilities, Income and Expenses and cash flow. The Financial Planner will look at your budget and see if your income exceeds expenses or if you are making up the spending gap through use of debt. She will look though Credit reports, bank account details and statements and check for important detail. If you were over-indebted, for instance, a plan would be drawn up to get you out of debt and into a more financially secure position.

Financial Planning

Investment Planning:
The financial adviser will look at your goals, needs and priorities and draw up a plan to meet these goals. Examples could be saving for kids’ education, covering a shortfall in your future retirement needs or buying a holiday house. The financial adviser will check whether your assets are diversified and whether your ability and willingness to take risk actually match. It is not a good idea, for instance, to have your money in Options or other risky investments when a loss in these instruments would leave you bankrupt.

Risk Management:
The Financial Adviser will check existing insurance coverage, Medical Scheme coverage and Health Insurance. They will look at different risks and advise on improvements in areas where risks are inadequately covered. Such areas could be Income Protection, Buy-and-sell insurance for business interests, Disability Insurance and other products.

Tax Planning:
Taxes are a major expense for all of us. Just check your paystub if you have any doubts. By having a professional look at your tax position you can harvest significant tax savings and gain greater insight into the taxable nature of assets, liabilities and income.

Retirement Planning:
Most of us will get to a time when we are not able or willing to work. We all hope that some day we will have the funds to be able to retire comfortably. A Financial Planner will look at your current situation, project forward to when you plan to retire and check whether you have a shortfall in funds. If there is a shortfall, the financial advisor will create a plan with steps you can take today to fund the shortfall in the future. This can be done either through insurance, savings or investment products.

Estate Planning:
A Financial Advisor will help you to make provision for your wishes to be honoured regarding the distribution of your Estate. The last thing you want is your least-favorite relative assigning themselves as the Executor of your Estate and bagging the bulk of your riches. Estate Planning is accomplished through wills, prenuptial agreements, medical power of attorney agreements and possibly through setting up companies and trusts. You estate plan will also make provision for the payment of Estate Duty and provide liquidity in your Estate, in case your assets need to be sold off unnecessarily to meet debts of the Estate. The last thing you want is for a family heirloom to be sold to pay off the bond on your house, for instance.

Everyone needs a comprehensive financial plan to reach financial security. Find a competent Financial Adviser today to put you on the right financial course.

Kevin Mzansi

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