With spring in the air, I thought it appropriate to discuss a few issues that, in my opinion, should form part of your annual financial spring clean.
You might recognise some of these as issues that you’d typically “kick down the road” with the idea of dealing with them at a later stage. We are all often guilty of neglecting to prioritise these issues appropriately, but neglecting to do so can have detrimental consequences for your financial wellbeing.
Prioritising some of these points might even free up some cash in the short term – money that can be rerouted to your investment portfolio to address specific investment goals, or that could even be put towards paying off some accumulated debt.
1. Annual increases in monthly investment contributions
In order to address, and hopefully reach their investment goals, it is often assumed that investors increase their contributions in line with inflation each year. By doing this you enjoy both the benefit of compound growth and subsequent cash flow relief when it comes to making sufficient provision over time. Investors, therefore, need to ensure that they stick to the plan and increase their contributions accordingly. Many investments allow for automatic, set rate increases in contributions and this is definitely an option to consider if, in the past, you have found yourself forgetting to increase your contributions.
If the option of an automatic increase is not for you, you can opt to increase your contributions manually or reach out to your financial advisor who can assist you in this regard. A conscious and purpose-driven increase may result in the annual contribution increase being higher than mere inflation, and this will ultimately be very valuable in reaching your investment goals.
2. Ensure that your will is up to date
For many of us, it feels as if the last two years have gone by in the blink of an eye and this might mean that you’ve suddenly found yourself with an outdated will. People often feel, given that their circumstances remain unchanged, that there is no need for them to update their wills. Nonetheless, depending on how long ago your will was drafted, it might still be beneficial to update it, regardless of whether your circumstances have changed or not. Changes in the regulatory environment often mean that the wording of the will needs to be adjusted so as to ensure the timeous and seamless administration of the estate from a practical point of view.
3. Update the contents of your Big Black Binder
We all have that one file that holds the most important information that your loved ones will need in the event of your death – and it is crucial that this file be kept up to date. Its contents should include, but not be limited to:
- Certified Copies of IDs, marriage certificates, birth certificates, antenuptial agreements and death certificates.
- Contact details of all relevant parties (financial advisors, bankers, tax practitioners, attorneys and so on).
- Details relating to all investments and bank accounts (these should include policy numbers, beneficiaries, benefits and contribution details).
- Details regarding any liabilities and monthly financial obligations (examples here are medical premiums, DStv, levies, utilities, short-term insurance and the like).
- Original title deeds and vehicle registration documents.
- Details relating to life policies, funeral policies and medical aid.
- Important information relating to staff, for example, UIF details, contracts and similar.
- Tax details.
For a more comprehensive list, please contact your financial advisor.
4. Ensure that service providers and financial institutions have your updated details on record
Always ensure institutions such as your bank have your correct residential address, postal address, contact and other details on record. For example, people often use their work email addresses for formal communication and this makes it imperative, when changing employment or when you retire, that you ensure that all future correspondence will be sent to your personal email address. In addition, other information that is often relevant to these organisations might include:
- Qualifications; and
- Marital status.
5. Powers of attorney
Should you require third parties to act on your behalf, consider formalising this arrangement by means of drafting a valid power of attorney. This will ensure that the third party is authorised to act on your behalf should this be necessary. In this regard, please be aware of the fact that a power of attorney is only valid whilst the person giving the authority, is of sound mind. From a regulatory point of view, institutions – especially financial institutions – are confronted with increasing levels of requirements. For example, the Protection of Personal Information Act (better known as the POPI Act or POPIA), recently came into effect and protects the personal information of both natural and juristic persons.
6. Review short-term insurance
Review your short-term insurance policy for unnecessary benefits that are included in your premium and to ensure the correct sum is insured. While the value of your car reduces over time, by contrast, the value of your property might increase due to renovations and improvements.
7. Review long-term insurance
It is of great importance to review the amount insured on a regular basis. Be cautious of being over or underinsured and always consider any group risk benefits that you might have. It is also important that your beneficiaries be kept up to date, something that is often overlooked during significant life events such as marriage, divorce or when you have children.
8. Beware of duplicate payments
Take care not to pay double for certain benefits and/or services. One often pays a monthly fee towards a specific benefit or service, which might also be a standard underlying benefit offered by, for example, your bank or insurance policy.
9. Loyalty programmes
There are many loyalty programmes out there and they are not always free of charge. Make sure that you are receiving the benefits that you are paying for. If you are not benefiting from these programmes, perhaps consider cancelling your membership.
10. Your medical aid
Check that your medical aid plan is appropriate to your needs and profile. Often, changing to a lower medical plan option, in conjunction with a good gap cover policy, can be more cost-effective. It is, however, also often beneficial to upgrade to a plan that might offer more appropriate benefits, given your current circumstances.
11. Ensure that your bank offering is appropriate
Make sure that your current bank account is appropriate for your unique needs. People often pay bank charges in accordance with a level of banking sophistication that is not appropriate to their needs. In many cases, a lower-cost option offering more basic services will be quite sufficient as well as more appropriate.
Some of the topics discussed here may seem inconsequential, but it is important to tend to such issues. The costs and implications can add up, leading to unnecessary expenses and too much cover, as well as benefits that do not suit your particular needs or that can lead to you unconsciously underfunding your own retirement. A good spring cleaning of your finances is not only good for long-term financial health but is also beneficial for your mental well-being.