• Nirdev Desai, Head of Sales at PSG Wealth

How to improve your financial plan right now

The current circumstances prove why it is important to anticipate that financial plans can be derailed and may need to evolve. The ’20-slot rule’, as explained by Warren Buffet, is the concept of imagining that you only have 20 investment decisions to make in your lifetime. This means it is essential to make sure each financial decision made has a meaningful impact on your overall financial goals. This principle holds true when applied to financial planning as it sharpens the mind to select carefully, think long-term, and thoroughly consider the risks that could derail your key financial decisions.

Planning and adjusting for unexpected circumstances will ensure your plan remains executable and relevant. While Buffett readily admits that not all of your investment decisions will be successful, sticking to the 20-slot rule will ensure that the losses from the less successful decisions will be well covered by the successful ones. Just because one investment decision in your financial plan doesn’t work out as intended, doesn’t mean they will all underperform. Here are some tips to consider in the process of building a wealth plan, whether going through a pandemic or not.

Use your environment

Uncertainty, coupled with constant negative news, may cause investors to make emotional investment decisions. However, to combat this, use this information to your benefit by adjusting your plan if you are in the position to do so.

An example would be additional financial reliance from a family member who has lost their job due to COVID19. It is a norm in our society to have multiple generations depending on one (or two) individual’s income, which means financial planning needs to be more intergenerational, and may require some adjustment now.

Put protection in place

If your regular income is key to building up your savings and investment pools, what are you doing to ensure these continue through good and bad economic conditions? You should also be insured against personal disruptors such as severe illness, disabilities, and divorce.

Maximise financial vehicles

Consider your asset allocations to investments by having a conversation with your adviser on how to implement your financial goals in this time of uncertainty. An at least annual evaluation of the plan is needed no matter what, so that you are on top of where (and when) to adjust again if needed. For example, determine your income drawdown strategy as well as the possibility of an adjusted retirement timeline if you’re behind on your retirement savings. Maximise tax incentives too.

Put yourself in a position to succeed

There is one key habit that will help you reach your goals: becoming a better saver. Financial advisers can only help those who are willing to commit to a financial plan, and it is likely to include various products for different goals. In volatile times people tend to withdraw their investments and then increase their savings as soon as they can. But liquidity constraints on lower incomes or higher levels of unemployment, coupled with lower share prices, make these very bad times to be withdrawing investments.

Finally, take note that investment decision making is only one component of financial planning. It is important to engage with your financial adviser, who can separate emotion from your investments and can help you to ensure that your plan is robust, adapting to life events, while still delivering on your defined goals. It’s ironic that planning for rainy days is usually triggered when people are least able to do so. But you need not let poor planning impact you negatively again, if you can help it.