The Star’s Personal Finance
One of the most common mistakes people make with their finances is waiting too long before they start investing for their old age. And the financial services industry should be doing more to ensure that individuals are saving enough for their later years.
So says Jonathan Moodie, of Moody’s Strategic Financial Services. As a financial planner, he has seen many people who, because they did not plan adequately for their retirement, are “dying a financial death” and losing their dignity after being forced to move in with their children or live in an old-age home.
Moodie says the best advice he can give anyone is to start saving early and ensure your investments generate sustainable returns on a consistent basis. If you follow this advice, he says, you will harness the power of compounded returns. For example, if you can consistently earn 15 percent a year on your capital, you can double your investment in five years.
And these returns can be achieved without investing in some risky scheme or taking bets on an uncertain stock market. Moodie says you can achieve consistent returns with a sound investment plan that employs hedge funds, absolute return funds or other strategies.
Another common mistake people make with their finances, Moodie says, is getting into “bad debts”.
Moodie regards anything you buy on credit that will not earn you money in future as a “bad debt”. Furniture, cars and many other material goods fall into this category. You are unlikely to generate any income from these items, they just depreciate, so you should only buy them when you have the cash to pay for them.
He says people should realise that having a leased BMW X5 and R1 000 in the bank does not mean you are wealthy. Accumulating wealth and financial security, he says, take years of planning and only very rarely do people become billionaires of the Mark Shuttleworth variety.
“By all means, dream the big dream, but be sensible in your planning,” Moodie says, adding that you have to work to make your dream come true – as Shuttleworth did. “Don’t wait; begin with a plan and keep moving.”
This ties in with another common mistake that Moodie has found people make – they do not draw up a budget and they never take stock of their wealth – their assets and their liabilities. If they did, he says, it would jolt them into reality and they would realize how little they have accumulated and how far they are from the day when they can wake up and not have to work, because their money will be working for them.
Establishing your current financial status is the first step in drawing a good financial plan, Moodie says. You also need to decide where you want to be financially and by what date.
Step two, he says, is to create a written financial plan with prioritised steps and a time horizon.
Next, you need to initiate your financial plan and stick to your investment strategy. Do not be swayed by the negative emotions of fear or greed, he says.
Step four is to ensure your financial plan has the full blessing of your spouse or partner, and then to review it biannually, Moodie says.
Finally, you must ensure that your financial plan:
- Has catered for your untimely death (no one ever dies at the “right time”, Moodie says);
- Reduces your income tax liability as far as is legally possible;
- Is inflation proof;
- Includes your investment strategies; and
- Secures your wealth from potential creditors.
Most people need a financial planner to help them draw up such a plan. But make sure you consult one who is suitably qualified. Moodie says another common mistake people make is that they seek advice from unqualified, would-be advisers.
Moodie himself has one of the best qualifications financial planners can get – he is a Certified Financial Planner (CFP) – and he has a post-graduate diploma in financial planning from the University of the Free State.
He specialises in holistic integrated personal financial planning, which includes estate planning, investments, retirement planning and risk management.
Moodie says he entered financial planning 20 years ago because he wanted to earn more money – he swopped selling catering equipment for selling life assurance policies.
But he soon realised there was a higher purpose to the business.
“Commission does not motivate you to call someone up cold and discuss sensitive things like their death,” he says. “You have to give a damn about making them realise things they should be aware of.
“After three months in the industry, I realized what difference disability assurance can make when I processed my first claim. The client is still receiving monthly income benefits after 20 years. Given the middleclass background my client came from and the modest income her father earned, life without the monthly disability cheque would have been dismal for her.”
Moodie has now been an independent adviser for 14 years. Besides himself, his business has two support staff. Moody’s Strategic Financial Services is well on its way to being prepared for implementation of the Financial Advisory and Intermediaries Services (FAIS) Act – its licence is pending and Moodie believes his administration and compliance are up to scratch.
Moodie says he welcomes the FAIS Act because it will force unqualified or partially qualified advisers to get their act together, which can only be good for the industry and consumers alike. One of the biggest problems in the financial services industry is that only 15 percent of financial intermediaries are CFPs, Moodie says.
The FAIS Act will also spell the end of “free advice” – the practice of advisers giving you advice for free because they earn commission on the products they sell you.