Money management (or mismanagement) is one of the leading reasons why people and businesses succumb to falling into a black hole of debt. Financial literacy is an essential resource needed to combat this problem.
If not addressed, people can make mistakes, and it can hang over your head continually and affect your mental health significantly. The financial burden also has the potential to cause rifts in the household which can lead to unnecessary family issues. The best way to deal with the issue is to confer with reputable independent financial advisers, who can serve as a lifelong partner when it comes to dealing with finances.
What is an IFA?
An independent financial adviser, also known as an IFA, is a finance professional who can help an individual or entity (such as a business) manage money effectively so that they can reach their financial goals. They are experts determining factors that can cause financial risk and provide solutions to mitigate them. These key resolutions will assist you in the long term when planning for your future wealth needs. He/she will provide advice and develop actionable wealth management strategies. Some areas in which an IFA can assist include but are not limited to.
- Budget planning
There’s a misconception that only people who struggle with money need to budget, not true. Whether you live paycheque to paycheque or have savings and investments, planning your finances should always be a priority. For example, if someone earns R10 million per year, but spends R12 million per year, they are going to be in massive debt. It doesn’t matter what you earn: budgeting is about not spending more than you earn. So, plan your budget by looking at it through a new lens: make a list of your expenses and cut out what you don’t need.
It’s beneficial to break your list into two categories.
These include rent, bond, personal loan repayments, utilities (e.g. water and electricity) and insurance (e.g. vehicle and household). These are expenses that you can’t do anything about; the monthly payments can’t be reduced. Instead, cut your variable expenditure.
These expenses include money usually spent on entertainment, recreation, travel, clothes, and dining. These are expenses that can be reduced significantly or cut entirely.
An IFA can assist you with developing a financial plan to ensure that you don’t overspend each month and can put some income into a savings product. They are also adept at educating you about how to use financial instruments to your advantage, e.g. using a bond as an asset.
- Investment management
We live in a world of inflation, and if money is kept in cash or low-interest accounts, its value will likely decrease. Investing is the best way to make your money grow. For the majority of people, it’s a crucial part of a savings plan. Investment management isn’t a simple process; there are numerous risks involved if you don’t know what you’re doing. Blindly investing in a fund is likely to be detrimental to your finances.
An IFA knows the variety of investment risks, e.g. how you are exposed to the market as well as tax implications of investments. By sitting down with you, taking your income and expenditure, as well as your financial goals into consideration, will recommend the best investment product. These include but are not limited to
- Mutual funds (unit trusts)
- Tax-free savings accounts (TFSAs)
- Retirement annuities
- Pension and provident fund schemes
- Offshore investments;
- Sinking funds
- Retirement planning
Everyone wants to retire, knowing that they’ve saved enough money to be financially comfortable and reap the rewards of all their hard work. However, that means you have to start planning for your retirement as soon as possible. There are different retirement savings products available; each has specific benefits and restrictions. So, you must have the support and knowledge to make an informed choice.
How to prepare before meeting with an IFA
Once you’ve made an appointment with an IFA, it’s best to prepare certain documents, objectives and questions beforehand.
- Define your goals
Do you know what financial goals you want to achieve? Perhaps you’re saving for retirement or your children’s education? Do you have short-term and/or long-term savings goals? These answers will guide an IFA with regards to his/her advice and which products he/she will recommend.
- Be precise
Ensure that you’ve compiled a provisional budget as accurately as possible. This is essential so that an IFA has a foundation upon which he/she can start mapping a true-to-life budget.
- Remember, patience is a virtue
An IFA will help you set realistic and sustainable goals. Asking him/her to build a budget that allows you to save 50% of your salary is more than likely not feasible. Instead, he/she is likely to suggest beginning with a smaller amount and perhaps set an escalation such as raising the amount that you contribute to savings by 10% annually.
The difference between an independent financial adviser and a financial adviser
Financial advisers (also known as tied advisers) generally work directly for a financial service provider such as banks or insurance companies. They will advise and promote their employer’s products and services only because they earn a commission on the products clients take, based on their recommendations.
As the name suggests, independent financial advisers are not employed by a company, and therefore they have an in-depth knowledge of all the products on the market. Through analysis and comparison, they can recommend which products best suit their clients’ needs based on their financial objectives. An IFA also specialises in financial calculations and based on the results, explain where clients’ stand; education is paramount. IFAs, ensure you receive the most cost-effective product to which you can commit.
Some work on a commission basis, whereas others will charge a flat rate service fee for the time and work they put into providing bespoke advice to their clients. They can also work for an IFA firm, or have their own company and client network.
At fio.life, we believe that complete honesty is the best policy that we can make. Our team of experienced independent financial advisers have exemplary, successful track records and will provide you with expert advice and recommend the ideal product to suit your financial needs. We strive to build lifelong partnerships with our clients and travel with them on their wealth growth and management journey.