Financial Adviser | How well are you managing your personal financial plan?

Oran Hall | The Gleaner

I am inviting you to take a serious look at how you have been planning and managing your personal financial affairs by answering the questions that follow and then deciding how you will address the deficiencies.

Have you determined your goals for the next two, five, 10, and 15 years? Here, I am asking you to say if you have set short-, medium- and long-term goals. It is important to do so to determine the investment strategies you will employ and how you will spend and save. It is also important to ensure that the goals support each other rather than be in conflict.

Have you taken stock of your net worth - your assets less your liabilities - in the last three months? It is useful to do so even once per year so that you can see how your wealth is changing in value and composition. It is your net worth that really measures your wealth.

Do you know all of your income sources and the value of each? This includes your investment income, income from part-time activities and, yes, monetary gifts, particularly those received regularly. It is important to know how much is available to spend, save, and invest.

Do you have a structured programme to save towards achieving your goals? The major issues here include how much, or what percentage, of your income you save; at what intervals; the instruments you use and their tax-efficiency.

How much do you spend and on what? If you use a budget, this should not pose a problem. You should be able to determine how much you spend on individual items such as motor insurance and on broad categories such as travelling. If you keep records and do a monthly accounting, you should be able to determine how much you spend annually.

Is your debt reasonable relative to your income and your obligations? It is not the dollar amount that is of greatest import. If your income is small, your debt cannot be high in dollar terms. Set a sustainable debt-servicing ratio. If it is too high, you may have to cut some expenses or increase your income.

Are your investments appropriate relative to your income, goals, risk and time horizon? As important as it is to invest, a poorly structured programme is not likely to yield the best results for you. Your approach is likely to change as your priorities change due, among other things, to the realisation of some goals and your age.


Are you taking advantage of legitimate ways to reduce your taxes? Do you use savings and investment instruments such as long-term savings accounts, unit trusts, and stock to make tax-free income?

Is your insurance coverage - life, disability, property, health - adequate? Do you assess your coverage to determine if you need to make increases and thus reduce your risk of loss in the event of unfavourable developments?

Do you have an active and concrete programme for supplying your retirement income? Formal pension arrangements carry significant tax benefits. If you do not have one, do you have assets such as savings and investments, a house you can rent, a business you can keep to provide income or sell to provide a lump sum, or insurance policies with an interest or investment component?

Do you have an estate plan and are the relevant documents - will, power of attorney, trusts - in place? If you have a joint account at the bank, are you fully aware of what is happening on the account? Is a person who enjoys your trust aware of where all your documents are?

Are you making serious efforts to improve your financial literacy? Do you attend financial seminars, read the financial press, listen to and watch programmes geared at addressing personal financial planning matters?

You need not be discouraged if you are not where you should be. What matters is that you take immediate action.

Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and ounsel.