3 Little steps to financial peace of mind

3 Little steps to financial peace of mind

Financial freedom doesn't mean you have to win the lottery or a get an unexpected call from the executors of a long lost uncle's estate in Provence.

Ian Mcdonald, National Manager of Financial Planning at MortgageSA, says that most people mistakenly think that more money is the only way to financial peace of mind.

"But the truth is that it is good habits and sound planning, rather that exceptional cash flow, that makes for a sound financial future too."

Here are 3 steps to achieving fiscal serenity:

1. Pay off your debts

"First, make a list of all your debts," advises Mcdonald, "and then determine how much interest you are paying on each of them.

"Pay your debts off in order of the interest by settling the highest interest bearing debts first.

Mcdonald says that drawing up a budget every month will provide a stark review of your income vs. expenditure.

"If you spend more than you earn, you will never reduce your debt. Use any spare cash you have to pay off debts until they are gone. It's important to use a budget to make provision to retire debt-free and then spend on other items, not the other way round.

"Once debt is clear, then people should start a savings plan."

2. Make tax work for you

"Why pay more tax than you need to? Especially when the tax man will pay you to save," notes Mcdonald.

"Make sure you are benefiting from the tax deductions available for saving towards retirement.

"We are all entitled to this benefit, the levels of which depend on whether you currently belong to an employer sponsored Pension / Provident Fund or not.

Mcdonald advises people to have a detailed Financial Needs analysis done by an accredited Financial Advisor.

"The purpose of this will be to give you a realistic perspective on whether you will meet your financial goals in the short term or long term and should you become the victim of unforeseen circumstances, you will know whether your bank balance will handle it."

Mcdonald says this should be a regular occurrence. Amongst other things the Financial Needs Analysis will include an analysis of how much cover you require to protect the lifestyle of your dependants should you die or suffer a disability or illness which renders you incapable of working either for a period of time or permanently.

3. Provide for your family

The final step is to prepare for you dependents' financial stability through life cover.

"People should ask themselves how their families would live if their source of income was switched off tomorrow."

Another important process in this step, Mcdonald advises people, is to remember to review the beneficiary clauses under your life cover policies during the financial needs analysis.

"Assets you might want to go to certain heirs may also get caught up in the estate "winding-up" process and could even be sold by the Executor to meet liabilities and costs. An estate can take up to 18 months to be wound up and no doubt beneficiaries would suffer.

"It's a terrible predicament which could be so easily avoided.

"If properly constructed the proceeds of the life policies will pay directly and immediately to the nominated beneficiaries and avoid being reduced by Executors Fees.

"People need to update their wills for the same reason.

"Again, a simple solution solves a potentially huge predicament."

Mcdonald points out that a Financial Needs Analysis will also highlight whether someone is over-insured.

"Recent changes to Estate Duty and Capital Gains Tax on death mean you might possibly require less cover now than you did last year.

"Why should people pay for more cover than they need?"

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