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Personal Finance | Interested in long-term financial planning

Published:Friday | August 26, 2016 | 12:00 AMOran Hall

QUESTION: I am interested in long-term financial planning. Could you give examples, please? I am 28 years old.

- Kady-Ann


FINANCIAL ADVISER: A personal financial plan is a road map, and it is long-term. It identifies the goals of the owner and the strategies to realise them, but is so structured that its various parts stick together such that there is no conflict between the goals or the strategies.

Your financial plan would have the following parts, but would likely change as some of your circumstances change. In some cases, though, although the goals would remain unchanged, the strategies would likely change.

Among the changes could be your personal and financial situation as well as changes in the economy and financial markets, and changes in the laws of the country relating to taxation, for example.

Before creating your financial plan, it is important to gather all the data you can about yourself, your family, and your affairs. These will be useful when you are creating the personal and financial sections of your plan.

Your personal financial plan could be organised as follows:

1 Personal data. This should include age, marital status, number of dependents, employment status and health status. An analysis of this section may reveal special circumstances which may impose restrictions on your investment policy and affect your risk tolerance.

2 Financial position, including your net worth and your family budget. It is important to determine the exact nature of your assets and liabilities, the amount and nature of your income, and the potential for future investible resources and savings. This information is helpful in determining the amount of income your investment portfolio will have to

generate and the level of risk that can be assumed to realise the stated financial goals.

3 Objectives/goals. These can be quite difficult to set, but are critical. They should be realistic and should take into consideration current earnings and your earning potential. Your goals should include a plan for how they will be achieved and the timeline within which they should be achieved.

Importantly, there should be an indication of how they will be funded. If the goal is the purchase of a house, matters such as saving and investing for the deposit and the expenses associated with such a transaction should be a central part of your financial plan.

4 Insurance. This section should include all the insurance coverage you have, including life, health, disability, property, content. Identify the provider, the amount, and the beneficiary where appropriate. Note any gaps that exist in terms of the type of coverage you should have, but do not, as well as the adequacy of coverage where there is coverage. Identify how and when you will close those gaps.

5 Taxation. Note the taxes you pay and whether they are up-to-date, and see where changes need to be made to create a more tax-efficient portfolio.

6 Estate planning. In this section, ensure that you have in place the arrangements for the smooth transfer of your assets to those you care about, not just after death, but during your lifetime as well.

In gathering data, you would have determined what is in place. Do you, for example, have a valid will or a trust agreement? Is ownership of all of your assets clearly identified and registered? If you have assets that are jointly owned, is this clearly reflected in the ownership documents? What is the current and true status of such jointly owned assets? Note any lapses and how these will be remedied.

7 Retirement planning. Regardless of your age, do you have any form of arrangement addressing saving for retirement? What are these arrangements? How much goes to retirement savings today, and what are the plans for the future? Are there any gaps, and how will these be closed?

8 Investment management. This is the big one as it will determine to what extent you will realise your goals. Your investment plan will be influenced by your risk tolerance, your need for liquidity, your income and capital growth, the time at which you expect your goals to be realised, your financial resources, and market conditions.

9 Plan implementation. It is quite likely that you may need professional help to put your plan together and to implement it, so you should not hesitate to seek help if you need to.

10 Monitoring and plan review. Because your personal and financial situation and other factors change over time, it is necessary to monitor and review your programme. You need to satisfy yourself that your objectives are being met and that your plan is realistic in light of your own situation and changing circumstances around you.

Youth is a good time to start long-term personal financial planning. This is a dynamic process as the many seen and unforeseen changes which occur over the passage of time may require a response, or even pre-emptive action.

- Oran A. Hall, the principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. Email