Sep 21, 2021 | News

Nick de Villiers, Trust Officer in Noordhoek, explains why it is imperative to seek professional financial planning advice regularly.

“Everyone has a plan until they get punched in the mouth.” Mike Tyson.

How does this relate to financial planning? Anecdotal conversations with financial planners over the years have led me to believe we are not good at seeking professional advice before we act, rather we consult someone after the fact to assist us in untangling a knotty problem. Quite often this is too late and we suffer a loss. It is likely that a chat with your advisor before the fact could have saved some financial pain.

Financial plans can be like new year’s resolutions. We create the plan then put it in a drawer and forget about it until our Trust Officer meets us for an annual review. This is often because we view the creation of a financial plan as an event. We would be better to view planning as a process that we should engage in regularly. Dwight D Eisenhower said, “Plans are worthless, but planning is everything.” Research has shown that we make about 35,000 remotely conscious decisions each day. We are also often blind to our own biases and can make poor decisions as a result. The value in consulting a financial planner is that you have an expert to assist you in examining whether your major financial decisions are the best you can make.

When should we consult our financial planner? We should review our financial plans at least once a year. There are situations throughout life where we face a financial decision and they may warrant a consultation with your Trust Officer. To examine this in more detail it may help to have a framework to view financial decisions. The obvious starting point is to examine cash flow in our lives.

There are probably two phases in life with regards to cash flow:

  • First, we have an accumulation phase – cash is flowing in and we’re buying and building. Financial planning and strategy are required for wealth creation. During this phase we are growing assets and wealth for the future and these decisions often have consequences that are only apparent in the distant future.
  • Then at some point there is a cash outflow phase, either graduated or full retirement. During this dispersal phase we’re no longer building but rather living off our investments and maintaining or getting rid of assets. Here we need to watch our burn rate and we need to have prepared to replace our income.

During these two phases there are likely to be many occasions when consulting your Trust Officer may prove beneficial. It is probably a good idea to review your plans before or after major changes or transactions. Consider reviewing your plans when you have a change in income level as well as on the occurrence of a milestone life event.

It is often helpful to review your plans when you have a lot of goals to prioritize or when you have questions about what to do next. Review your finances before opting for a big loan and when diagnosed with a life-threatening disease.

The other major factor to think about with regards to financial planning and decision-making is a consideration of risk. It is essential to have a financial plan to deal with absolute risk: health, disability, and death ̶ and ensure we have appropriate life and health cover in place. We also need to consider how to mitigate against relative risk – losing money as a result of an unfortunate life event (having a valuable possession stolen or damaged). Here short-term insurance might be appropriate.

We should also consider when we do this planning. I don’t know the origin of this proverb but it seems apt: “When you’re up to your ass in alligators, it is difficult to remember that your initial objective was to drain the swamp.” Think about reviewing your plans while life is calm and you’re between transitions, not while you’re in the swamp wrestling alligators.