While you may not already know, we are hoping that this letter will take a giant leap forward in emphasising our core WHY, or purpose, which is FINANCIAL WELLNESS.
And what better way to show our commitment to Your, and Your Family’s, Financial Wellness, than by writing this High-Alert Message on Covid-19’s raising of the veil on Your Own Savings Crisis.
As advisers we are constantly peering into the future and are deeply aware that the future is a continuum, which begs the question: How long is a piece of string or how many generations do you wish to plan for?
Generation 0 – Where you are Now!
Clearly Covid-19 has shown an awesome ability to poke holes in our emergency cash flow reserves and highlight the vulnerabilities within our occupations.
Here we wish to dispense the following advice:
1. Encourage each family member to adopt a savings regime based on Mental Accounting
Mental Accounting requires you to have multiple investment accounts which cater for multiple purposes helping you avoid the temptation to tap into, for example, a longer term savings pool when disaster or impulse strikes.
Common Mental Accounting Categories/ Accounts might include:
- Holiday savings
- Emergency – 3 months cash flow
- Medium Term – 5 year goal to finance an asset
- Long term – Retirement
- Legacy – building wealth for the generations to follow
2. Time to make Tough, but also really exciting, choices.
It’s time to get real with your family… Time to realise that those who haven’t saved or accumulated enough in their lifetimes will need the support of family. Furthermore, those who still have time (whether it’s 5 or 25 years) need to figure out how to spend less and save more, or earn more and save more.
Downscaling should not be seen as failure, but rather a new level of wealth consciousness. For living within your means is admirable. Generally, this implies selling your home to rent or buy a smaller home. Typically, this decision also requires moving to a different neighbourhood.
The shift is a big deal for many and many people find it disappointing to learn how few years of extra income their home buys them if they sell and are still committed to enjoying the same lifestyle, albeit on a few million Rand.
At Kanan Wealth, we are here to coach you through this transition as well as helping you crunch the numbers, and stretch your funds as long as possible by:
1. Helping you choose the optimal investment solution and
2. Guiding you along the way.
Here it is critical to think ahead, so that as you earn more you are encouraged to save/ invest more.
Think about it like this:
Every extra luxury you acquire becomes that much harder to let go of when the future arrives and you are forced to shift as you have not saved enough. Rather take care of the basics first. Regularly review your retirement needs and savings and then upgrade your lifestyle if the calculations say you can. If you don’t practice the above you will find yourself being forced to Downscale sooner than you think.
Let us know if you appreciate the tactless nature of this article. When it comes to vital issues, we would love to be as direct as we can and tackle the issues facing Your Next Generation in the decades ahead.
Yours in Financial Wellness,
Stuart and Jonathan
PS – You may really like this YouTube video summarising the views of The Barefoot Investor