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Johannesburg - People often plan their life goals, but are not as diligent in planning their financial goals to ensure that they and their families are financially secure.
Prem Govender, a Certified Financial Planner (CFP®) and former chair of the Financial Planning Institute of Southern Africa, provides some tips:
"Sadly, people often don’t realise that there is a financial aspect or cost to attaining one’s life goals. The goals that people do tend to set are usually quite varied, but ultimately it is essential to ensure these contribute to one’s financial independence," said Govender.
"If one simply plans without taking this important factor into account then clearly these goals are not going to materialise."
The trick to successful financial planning is planning around, and for one’s lifestyle. It is important to not deviate too much from this plan from year to year.
An example of this would be that the person would like to travel overseas every four years to attend the cricket world cup. The only way to achieve this goal is to diligently save towards it. The same goes for all of one’s lifestyle goals.
Child's security
"Your child’s security is among the greatest concerns for any parent. Every parent thinks about their children’s future, but few actually implement the necessary processes to ensure their child’s financial security," said Govender.
"Most parents want only the best for their children, particularly in respect of their education. Given the state of public education in the country, it’s no surprise that parents are increasingly making huge sacrifices to send their children to private schools."
Again, this comes at a cost and unless one plans for this cost, it’s not going to happen. So, it’s all very well wanting the best for your children, but this can only happen with proper financial planning.
However, there is the real possibility that death or illness can rob the parents of providing the best for their children. In this event it is essential that parents carry sufficient risk benefits, like death and disability, to ensure that their dreams for their children don’t die with them.
Losing a parent
Losing a parent is an exceptionally difficult time for any child however, in the unfortunate event that both parents pass away, the impact is immeasurable. Not having financial security further compounds the situation and could have catastrophic consequences for your child’s future.
"Parents are accountable to ensure their children’s needs are well taken care of and are responsible for the paycheque that enables some of these obligations to be fulfilled. To fulfil these responsibilities, the process would start with determining how much the children would need to live on from the time of a parent’s death to the time that they become financially independent," explained Govender.
"Although affordability would be a consideration, this sum will be based on what the current lifestyle and financial goals are. A Certified Financial Planer (CFP®) will be able to assist the parents in determining this amount and insure accordingly."
In determining this, all the risks should be covered - like death, disability and critical illness - as all of these can impact on an individual’s ability to provide for a family.
And if a person is self-employed or does not belong to a pension or provident fund, then they would also need to insure against loss of income in the event of accident or death.
This is critical in ensuring that a family survives if the breadwinner is unable to work in such instances.
Properly drafted will
There is always the very real possibility that both parents can die, leaving minor children without a guardian.
The best thing that parents can do for their children in such an instance would be to leave a properly drafted will, clearly spelling out who would become the guardian.
This should also specify who will be controlling the children’s inheritance (usually trustees in a testamentary trust), bearing in mind that children under the age of 18 are regarded as minors and as such are incapable of managing their own finances.
If parents don’t stipulate this then the Master of the High Court will decide who will raise the children and any inheritance will be held in the guardian’s fund until the child turns 18.
Money wise
Is there anything else that parents should be aware of to ensure they are safeguarding their child’s financial future?
"Yes, they could also teach their children how to handle money and the importance of saving. Children learn by the example and guidance of their parents," said Govender.
"It is, therefore, important that parents themselves are disciplined about spending and saving, and in so doing set good examples for their children.
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