The Northwood team is committed to helping clients achieve their financial goals, from buying property to selecting the right insurance and investment policies that will ensure a comfortable retirement. However, before the process of wealth creation can begin, many clients require a process of financial problem solving in order to balance their monthly budgets and create a surplus for savings and investments.
Contrary to what many people believe, the size of your income doesn’t always determine whether or not you are able to balance your budget at the end of each month. The example of Mr Smith*, who came to us for a session of financial problem solving, illustrates how a client with a comfortable income can struggle to balance his monthly budget:
At 36, Mr Smith is enjoying a good quality of life. He is unmarried, living with his girlfriend and earning a good income from a well-paid job. His only major expense is a R5000 bond payment, but he has no major investments. He and his partner earn a combined monthly income of R50 000, but choosing to spend the bulk of their earnings on living expenses they spend a total of R51 000 each month.
To get Mr Smith onto the right track, we applied the Northwood Process to his financial problem:
Creating an Emergency Fund
We advise every client to accumulate an emergency fund of R250 000, which is placed in a Unit Trust investment and allowed to accumulate. Since Mr Smith has accumulated half this amount, he needs to budget correctly in order to reach his savings goals.
The Value of Passive Income
By playing Cash Flow 101, a game which helps clients to understand the principle of passive income, we convince Mr Smith that investing in a diversified portfolio is the best way forward. He agrees to budget effectively so that his savings goals can be met.
A Balanced Portfolio
Our final step is to work with Mr Smith, advising him which assets should form part of his diversified portfolio. With the right assets in his portfolio, our client will benefit from passive income, a crucial first step in achieving financial freedom.
If you have a financial problem, don’t delay – speak to the Northwood team and we’ll work with you to achieve your personal finance goals.