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By Maria Smit*
Without making any bones about it, financial planning for women is a subject that is more complex and nuanced than many give it credit. Your circumstances, often as a mother, a breadwinner, and carer for your family, mean you cannot rely on others to take care of your future.
Taking charge of your finances is one of the most effective ways to ensure your future independence and happiness.
And you don’t need to have great wealth, an established family or any other criteria to sit down and look at your finances. A financial plan is a map to the future you’ve always dreamed about by helping you achieve short and long-term goals in realistic, achievable ways.
Do you know, for instance, how much money you’ll have at retirement? A common rule of thumb is that you need to have saved 15 times your annual salary at retirement if you want to earn 75% of that amount through your retirement.
To give you an idea of the numbers involved, if you plan to retire at 65, you must start saving:
15% of your salary from age 25;
19% of your salary if you start at age 30;
24% of your salary if you start at age 35; and
33% of your salary if you start at age 40.
This is assuming your income grows at 1% a year above inflation.
Why financial planning is your top priority
It’s easy when looking at these numbers to appreciate the value of a financial plan.
Whether you’re single or married – in or out of community of property – the reality for the majority of women is that we will outlive our male partners. So, chances are pretty good that you’ll be left to handle the finances anyway after your partner has passed on.
Which is why I suggest to my clients that they should take an active part in planning and understanding their investments and retirement plans.
By being better informed, you’ll hopefully also overcome an inherent female trait: we’re more risk averse than men and often shy away from risky assets for fear of losing our savings. This hesitancy often works against us because it can prevent us from making the best long-term investment decisions.
And that is the value that a trusted advisor brings. You can’t be expected to be the expert on financial markets and instruments. Rather leave this to a suitably qualified advisor who can help you put together an investment strategy that will overcome your natural inclinations to avoid risk at all costs.
A plan gives you purpose
With a financial plan to guide your decisions, you don’t have to be concerned about whether you’re making the right decision. If your plan shows that you will benefit in the long run by staying invested, then your first priority is to follow the plan.
By following a predetermined path, you’re less likely to be distracted by short-term noise and emotion. It’s been shown time and again that markets do recover after periods of volatility and investors who didn’t sell had the better outcome.
A solid financial plan can also reduce overall stress if it helps you take care of life’s big responsibilities. Apart from planning for your retirement, you probably also have children to take care of and plan for their future education and well-being. Your plan can help you prepare for these future events.
Don’t panic if you’re not on track
Many of us find ourselves a little or a lot short of where we’d like to be to retire gracefully. The obvious remedy is to take corrective action, which should be informed by your financial plan. And you’ll only benefit from the power of compounding returns if you take action now rather than delaying any further.
A good financial adviser can help you calculate whether you’re on track using retirement planning software and assumptions to project how much you’ll have by the time you get to retirement age. You’ll also be able to project how long that income will last in retirement.
It’s true that you can find online calculators that promise similar projections, but I’d caution against relying solely on these online tools to plan for retirement. Speaking to a qualified advisor will give you a fully informed opinion based on your specific needs and goals.
With the right person guiding you, financial planning doesn’t have to remain a mystery. By partnering with a trusted advisor you get the benefit of their expertise without having to compromise on our goals.
- Maria Smit is a Financial Planner at Brenthurst Wealth Pretoria.