The Northwood Process of Financial Problem Solving

financial-problem-solvingThe 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.

2 thoughts on “The Northwood Process of Financial Problem Solving

  1. Good day,

    I have read the article and wondering about Unit Trust’s. Had a discussion with my family on the topic and the following questions came about which got me thinking as to whether the Unit Trust would be the best option.

    I am aged 56 and currently working, to retire at 60 and looking for ways to invest a lumpsum I have. The idea of taking out a unit trust came about but then was posed with the following questions which I was unsure of:
    – what period would be suitable?
    – will I be charged a fee should I need to cash in on the money used in the unit trust?
    – at my age would Unit trust be suitable?
    – my main aim is to grow the lumpsum for the next 4 years but also being able to access the money with minimal fees (R0 would be best, of course)
    – what are the positives and negatives of taking out a unit trust?
    – what other options are out there?

    Are you able to advise? Or would you require additional information?

    • I am unable to give you specific financial advice which applies only to your situation. To do that, you would need to enter into a relationship with our brokerage, and that would involve costs, and a considerable amount of research.

      However, where general information is asked for, we gladly give answers.

      If you had come to us for a full financial planning exercise, I would have asked you about your budgets. That will tell me how much you need to spend every month. That gives me an idea how much you will need on a monthly basis to survive while on pension. Then I have to take into account that you are likely to survive for 30 years. What will inflation do to your income needs? 30 years ago a brand new Ford would have cost you R32 pm. Look at what that costs 30 years later. Your financial adviser has to plan for your future, and take into account inflation calculations.

      The kind of unit trust has to be chosen very carefully. We need to do a risk assessment. Not all unit trusts are created equal. ongoing management has to take place when changes need to be made.

      Then we need to know what pension you already have. Can we ensure a comfortable retirement? It is far more complicated that just trying to get a cheap unit trust.

      Can you see that unless you get advice, you cannot ensure that you will survive? A skilled person has to guide you. Someone has to pay for those services.

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