Financial Planning 101: A practical Q&A guide to building your wealth

PART A

1. What is financial planning, and why is it important for individuals and families?

Financial planning is a step-by-step process that helps individuals and families manage their income, expenses, and investments to achieve long-term financial goals. It involves making informed decisions about saving, spending, and protecting your wealth. While we can’t control the future, we can take small steps today to secure it.

2. What are the key components of a comprehensive financial plan?

A well-rounded financial plan includes:

• Budgeting: Tracking income and expenses.
• Saving: Building emergency and goal-based savings.
• Investing: Growing wealth through assets like unit trusts or shares.
• Insurance: Protecting against risks (life, health, property).
• Retirement Planning: Ensuring income after working years.
• Estate Planning: Managing wealth transfer and wills.

3. How do I create an effective budget, and what tools can I use to track my expenses?

Start by:

• Listing all sources of income.
• Tracking monthly expenses (fixed and variable).
• Identifying areas to cut back.
• Allocating funds to savings and debt repayment. Tools include:
• Budgeting apps (e.g. Standard Bank Budget Manager add-on)
• Excel or Google Sheets
• Banking apps with expense tracking features.

4. What savings strategies should I consider when preparing for short-term and long-term financial goals?

Use SMART goals (Specific, Measurable, Achievable, Relevant, Time-bound). For short-term goals, consider:

• Tax-Free Savings Accounts (TFSAs)
• Fixed deposits 

For long-term goals:

• Retirement annuities
• Endowments 
• Unit trusts or Exchange Traded Funds
• Emergency fund: Save 3–6 months of expenses.

5. How can I set realistic financial goals, and how do I measure my progress?

Set goals based on your income, lifestyle, and priorities. Break them into:

• Short-term (e.g., holiday, emergency fund)
• Medium-term (e.g., car, education)
• Long-term (e.g., home, retirement) Track progress monthly or quarterly using budgeting tools or a financial adviser’s dashboard.

PART B

6. What types of investments are available to South African investors, and how do I choose the right ones for my goals?

Common investment options include:

• Unit trusts: Diversified and professionally managed.
• Shares: Higher risk, potential for high returns.
• Bonds: Lower risk, fixed income.
• Real estate: Long-term capital growth. Choose based on your risk tolerance, investment horizon, and financial goals. Liberty advisers can help tailor a portfolio.

7. What retirement planning options should I consider, and how do I determine how much I need to save for retirement?

Options include:

• Pension and provident funds
• Retirement annuities
• Preservation funds 

To estimate your needs:

• Consider your desired retirement age and lifestyle.
• Use retirement calculators or consult a Liberty financial adviser.
• Aim to replace 70–80% of your pre-retirement income.

8. How do I protect my financial future through insurance and risk management?

Insurance is key to managing financial risk. Consider:

• Life insurance: Protects dependents.
• Disability and critical illness cover
• Medical aid and gap cover
• Home and car insurance 

Liberty recommends reviewing your cover regularly to match life changes.

9. What role do taxes play in financial planning, and how can I optimize my tax situation?

Taxes affect your:

• Investment returns
• Retirement contributions
• Estate planning 

Strategies include:

• Using TFSAs for tax-free growth.
• Claiming deductions on retirement annuity contributions.
• Structuring your estate to minimise estate duty.

10. How can I find trustworthy financial advice or a financial planner in South Africa?

Look for:

• Certified Financial Planners (CFPs) registered with the Financial Planning Institute (FPI).
• Transparent fee structures (commission vs. fee-based).
• Experience and client reviews.

Liberty offers access to qualified advisers who follow a six-step planning process to ensure tailored, ethical advice.

*Article developed by Liberty as part of its consumer financial literacy initiative.