Financial planning basics to help you save

Gerard Visser, Certified Financial Planner at Alexander Forbes

The Covid-19 pandemic has put significant strain on the finances and financial planning of all people and companies. The weakening South African economy and highest unemployment rate in 12 years place even more stress on our pandemic-affected population. As a result, overdue debt balances have increased for many people, who rely on their credit to keep going.

The pitfalls of cutting costs

Financial advisers have noticed an increase in queries from clients on reducing their retirement fund contributions, premiums and cover amounts as people try to find ways to cut costs. In some cases, clients have cancelled policies entirely. Decreasing cover amounts and contributions to your investments or cancelling policies entirely will most certainly create a shortfall in your financial planning. For those who have made changes during the pandemic, it will be vital to review investments and policies once their financial situation improves.

The importance of an emergency fund

Now more than ever, advisers are seeing clients realising how important emergency funds and voluntary investments are. These investments are a good solution to help with cashflow and rising unexpected expenses. When setting up an emergency fund, you need to try to save any monthly disposable income remaining from your monthly budget. Investors should aim at building up an emergency fund of three to six times their monthly salary. You should be able to access these investments easily so that you can transfer funds across during tougher times.

The importance of reviewing policies regularly

Review your policies and insurance cover to ensure that:
• the cost for the cover you have in place is within what the market offers
• you are not overpaying on costs for any insurance policies, such as short-term insurance

You might have cover in your personal capacity and through your employer, for example disability income protectors and life cover. If you have policies with similar benefits, this is a good time to review them and make sure that you are not over insured.

The importance of budgeting

If you did not receive a salary increase, your salary has been cut or your expenses have increased, your budget will need to be stricter with less money allocated to entertainment.

Unfortunately, some of us might be getting behind or creating shortfalls in personal financial planning. It is important to have the right mindset to ensure that the change is temporary. Once stability returns, you should review your financial needs and try to make up the shortfalls.

Those who are facing a high debt burden will certainly struggle to save, as most of their income is going towards paying off their debt. Most important for anyone going through the same situation will be to reset your base. If you are struggling to cover all your expenses, completely relook your current situation. Start your budget from scratch, including essential needs only. Try to adapt to your new circumstances. Don’t work with what you once had – work with what you now have. If you are really struggling to make your debt or loan payments, contact the respective institutions and try to agree a payment plan.

Saving from a young age is beneficial

While it might be difficult for young investors looking at starting their financial planning to take their first step in the midst of the effects of the pandemic, it is definitely better to start sooner rather than later. Poor spending habits are not easily broken.

Employers often offer financial well-being programmes and financial advice, where employees can get information on their retirement funds and financial advice. It is an easy way to get hold of a financial adviser when you are unsure of what your options. Your adviser can help you make an informed decision and ensure you have all the information to make an informed decision.