Plan properly to provide for your children and theirs

REUTERS

Too late: Never assume you will be worth more dead than you are alive.

There is a biblical proverb that calls the man good or blessed who takes care of his children’s children.

It’s Proverbs 13:22: “A good man leaves an inheritance to his children’s children: but the wealth of the sinner is laid up for the just.”

That means that the man (or woman) should take care of not only his direct family, but also the generation after that.

I think that there are very few blessed among us.

In my 30 years as a financial adviser, I have met very few people (maybe as many as you can count on two hands) who have provided sufficiently for their family – and have not met any that were “worth more dead than alive”.

Not once have I met someone whose family would be better off with him (or her) out of the way. This essentially makes all the South Africans I have met selfish, poor providers.

Today I hope to convert just a few readers to become truly good providers for their families.

If we look at the proverb closely, we note that it makes your grandchildren the object, the aim or goal – meaning that also in death we have to take care of our own.

If not properly provided for in life and death, our loved ones will become a burden on society or the state.

Too many people believe that if they have five times their annual salary as a life cover provision on their pension fund, they have enough. Believe me, this is an incorrect conclusion.

Too many think that having good life cover makes you “worth more dead than alive”. This is an arrogant conclusion.

Let us think about it: five annual salaries at 0 percent interest will last just five years; and, even at 5 percent or 6 percent interest, returns may last just seven years.

This is poor compensation if the loved ones have a life expectancy that is likely to exceed 20 and even 30 years.

In the financial planning profession, advisers calculate the amount needed to replace the income (salary) with capital and add to that the amount of all debt.

The result is closer to 20 times the annual salary. It follows that a person who earns R100 000 a year should provide about R2 million of life cover when married with children and a home.

At that point you only merely break even and only beyond this will you become worth more dead than alive.

In life there are only three events that we need to consider:

1. Living too long.

2. Dying too soon.

3. Having life interrupted by illness or accident.

The first requires sufficient savings, pension and other accumulation of assets that can be redeemed or sold when we are old.

The third event, when life is interrupted by illness or accident, is the cruellest.

We will in this instance become aware, live and witness the result of poor provision when we are not dead but alive, incapacitated and not able to work for a period, sometimes for the rest of our lives.

In this instance you will need a good medical aid scheme (or at least a hospital plan) as well as an income replacement plan that will provide the necessary income that will meet all the expenses you still have.

All these events can be provided for with insurance covers.

They are not expensive. So, stop hiding behind the excuse that you cannot afford to provide sufficiently.

Instead, realise that you cannot afford not to make sufficient provision.

Do not leave this important task to a third party.

I have prepared a calculation sheet that will assist in determining and accurately calculate the value of your need – if you’d like one of these sheets, e-mail me and I will send you a free copy.

l Deon Hattingh is a certified financial planner and trainer on financial literacy, budget and debt management, and wealth creation. For more information, visit the website at www.makingSENSE, or e-mail deon@makingsense.co.za