14th August is National Financial Awareness Day in the US. We believe that financial awareness is key to a secure and happy life, so we’ve put together this list of eight important financial planning questions to ask yourself. Can you answer ‘yes’ to all of them? If not, it’s time to spend some time getting your finances in order.
Eight important financial planning questions
When the economic going gets tough, as it is for millions around the world right now, it is more important than ever to focus on your financial planning. It’s imperative to use the assets and resources that you have in the most effective way to enable you to ride out financially testing times stress-free.
1. Could I handle an unexpected expense of $1,000?
A $1,000 emergency could come in many forms: a car that needs fixing, a pet that requires surgery, a leak in your home, or a medical emergency…. Yet 39% of Americans (and doubtless millions of others worldwide) would be unable to cover an unexpected $1,000 expense. Could you? If the answer is no, this is something that you should address.
If you answered ‘no’: Start saving into an emergency fund
A robust emergency fund to cover unexpected costs is a must for every household. If you don’t have one, start saving now. We recommend setting aside six months’ worth of regular expenditure for emergency use only. This money should be kept separate from your everyday funds. Look to place it in the highest interest-earning easy-access account that you can find. For an emergency fund, accessibility trumps return in terms of importance.
2. Do I have a clear financial plan?
French aviator and writer, Antoine de Saint Exupéry, said ‘A goal without a plan is just a wish!’. You’ll find this quote front and centre on our homepage because assisting clients in planning to achieve their financial goals is the foundation of what we do.
Financial security means different things to different people but whatever it means to you, you need a plan to achieve it. Without one, you’re like a marathon runner trying to reach the finish line with no idea of the route to take. You’re making life very difficult for yourself and are likely going to fail.
If you answered ‘no’: set some financial goals
It’s worth taking the time to set some SMART financial planning goals for the short, medium, and long term. There is some advice on setting goals in this article. But if you’re really serious about putting a robust plan in place to achieve your objectives, we recommend working with a professional financial adviser.
3. Are my debts helping me achieve my financial goals?
Not all debts are bad. Debts with affordable repayments that will improve your long-term financial security are fine. For example, a mortgage leads to ownership of an asset, and a student loan that leads to a degree often means higher income potential in the future. But debt clocked up to buy non-essentials that you can’t afford is detrimental to your financial health.
If you answered no: Pay down unsecured debts
If you have debts that are not contributing positively to your long-term financial plan, they need to go. Take an inventory of your debt and formulate a plan to get them paid off. You’ll find some useful advice on how to do that here.
4. Am I saving each month towards my future financial goals?
Unless you win or inherit a large sum, long-term financial security can only be achieved by regular savings. You might have to sacrifice gratification in the short term, i.e. not spending every disposable penny that you have on fun stuff, to build wealth over the long term. For many of us, the big future financial goal is a comfortable retirement. That becomes much easier if planned over several decades.
If you answered ‘no’: start a regular savings plan
A regular savings plan means setting aside a portion of your income to save and invest every single month. Take a good look at your budget and channel a specific sum into a savings vehicle as soon as you get paid each month. Once it becomes a habit, you won’t miss the money, but you’ll be accumulating wealth and benefitting from compound interest over the long term.
5. Am I confident my investments will enable me to meet my future financial goals?
How you invest your savings can make a huge difference to your net gain, especially over a long time period. Of course, we all want to make as much money as we can, but we have to balance reward with the amount of risk that is right for our circumstances. There are a number of factors that should be taken into account including our financial situation, our attitude to risk, and our investment timeframe.
If you answered ‘no’: consult a professional
To navigate your way through the myriad insert of investment options out there – from bank savings account to investment funds and cryptocurrencies – it really is best to speak to a professional financial adviser who can carry out a needs analysis and accurately assess your risk profile. If you’re nervous about what happens in a first consultation, find out by watching a video here.
6. Would my family be able to maintain their current lifestyle if I died?
If your family relies on your income to cover all or part of the regular household bills, your death could have very serious financial repercussions. Lifestyle compromises would be unavoidable at a time when your loved ones would be grieving and less emotionally resilient.
If you answered ‘no’: get life insurance
If you have anyone depending on you financially, and even sometimes when you don’t, life insurance is a key part of a comprehensive financial plan. You need to calculate how much you require with care. A financial adviser can ensure that you have the right amount of coverage and advise on the most suitable products for you and your family.
7. If I, or a member of my family, had an accident or became seriously ill, would the medical bills be covered?
We all know how crazy expensive medical bills can be if you have to undergo serious and/or lengthy treatment. Do you really want to risk having to pay out of your own pocket? Or worse, forego treatment because you can’t afford it?
If you answered ‘no’: take out medical insurance
Medical insurance transfers the risk of high medical costs to the insurer. It is reassuring to know that if you or your family is diagnosed with something nasty or injured in an accident, the insurer will pick up the tab. Infinity has partnerships with all the major insurers and our advisers can provide quotes and explain policy differences to you to help you find the most appropriate insurance for you.
8. Would it be easy for my next of kin to sort out my affairs if I died?
None of us like to think about death but it’s important to get your affairs in order to make things as simple as possible for your loved ones once you’re gone. Our consultants have seen too many people overwhelmed by the mess their partners have left behind when they die. In certain cases, it can take years to unpick everything. A lot of worry and stress can be avoided if you plan ahead.
If you answered ‘no’: do some estate planning
There are a few things you can do to make life easier for whoever has to deal with your estate. A will is essential to make it clear who you want to inherit your assets. You may also be able to minimise the amount of inheritance tax payable on your estate by planning ahead. Parents should also nominate guardians for their children. Professional guidance can ensure that you have done everything necessary to make the task of winding up your estate as easy as it can be. Cross-border estate planning is complicated so take professional advice.
****
If you answered no to any of these eight questions, we’d recommend taking action and adapting your financial plan to incorporate our suggested solutions. Our highly experienced consultants would be happy to answer any questions you have and help you do whatever you need to do to make your financial planning watertight. Contact us for a discovery chat.
A leading provider of expat financial services and wealth management services across Asia.
