The old saying, “Failing to plan is planning to fail” is a truism. Floating through life with the hopes of one day having enough money to be able to retire on is unfortunately a very naive thing to do. The only way that you will be able to retire is by putting a winning formula in place and sticking to it.
Retirement is not a given
But what is retirement, actually? Most people think that it is the day you hit 65. In reality though, retirement is having the choice to stop working. It means having a passive flow of income that exceeds your monthly expenses, and being able to enjoy your life’s work. Very few South Africans have this choice, less than 6% of people, in actual fact.
With this is mind, the single most important reason for having a financial plan is so that you will be able to stop working one day. That day may be in your 60’s or in your 40’s, it depends on how smart your work and how well you plan. But one thing is certain, should you not have a plan, you will most likely struggle financially through life and have no choice but to continue working.
Passive income is the goal
How you achieve the goal of generating a passive income that is large enough for you to live off is no small feat. It requires years of dedication and consistently prudent investment choices. There are many ways to do this, and some are far better options that others. Retirement-saving strategies can range from climbing the corporate ladder for 45 years and contributing diligently to your pension fund like using the Sharenet BCI Balanced Fund, to starting your own business that brings such value to the market that it provides you with a large payoff when you sell it. Alternatively, you could build a property portfolio or even build a personal share portfolio comprised of high quality, dividend-paying stocks. At the end of the day, there is no single plan that is best for all, you need to figure out what path you are on and make the best of that choice.
Half the battle is won once you know what your strategy is. The next step is the details, and as we all know, this is where the devil is. With any investment strategy comes financial products, but how do you know which products are best for you?
Simply put, unless you spend a very large amount of time on the internet educating yourself on the multitude of different products available, you will have no idea what is best for you. This means that you run the risk of using a financial product which is not optimal for your needs, or worst case, is just downright terrible and extracts a significant portion of your investment gains as “fees”.
Seek out a trustworthy financial advisor
This is where a trusted financial advisor comes in, and I cannot emphasize trusted enough. You have one shot at life and you need to work with somebody who places your needs before his own. In other words, the products he supplies you with suit your needs best, not his own.
Here is a truth nugget: Sitting down for a few hours every couple of years with an insurance salesman does not mean you have a sound financial plan in place. Unfortunately, many “Financial Advisors” are nothing short of hucksters who are trying to extract a quick buck from you. This may not always be their fault as it is simply the training that they receive, but the end result for you remains the same.
Thus it is vitally important that you work with somebody who actually has your best interests at heart. This is easier said than done, as salesmen who are distributing financial products also have bills to pay. This makes it vital that you get to know your financial planner well and deal with one who has a reputation for putting his clients first.
Watch out for more articles on wealth
Over the next few weeks I will be writing a series of articles detailing the ins and outs of building and managing wealth. What I will cover is the following:
1. Constructing a financial plan
2. Insurance (wealth protection)
3. Investments (wealth creation)
4. Estate planning & Tax
Ricki specializes in the field of wealth management with a focus on holistic financial planning. He has a keen interest in the investment fields of property, technology, precious metals and cryptocurrencies. Ricki also holds a Masters degree in Science from the University of Stellenbosch.