Expert advice: How much should you really be spending on insurance?
A certified financial planner shares advice on how much of your salary should go towards paying for insurance.
Financial planning for the future is very important.
In South Africa, most people have to deal with countless calls from insurance brokers selling policies. Some of these policies include life cover, funeral cover, retirement, and education. There are also insurance policies for the house, car, and household. All of these policies can take a large chunk out of one's paycheck.
However, with the present financial struggles that many South Africans find themselves in, it is important that taking care of future financial needs doesn't leave you struggling to meet your needs for today.
READ: What you need to know about funeral cover - expert advice
Wayne Paries, a certified financial planner from SWI Financial Consultants, says the start point is having a financial plan "as the sooner the financial plan is put in place, the better it would be."
When it comes to how much is too much when it comes to insurance, Wayne says there should be no such thing as a bespoke percentage, but the decision should rather be made based on one's financial needs and goals.
"Looking at one's own situation and the financial plan will then highlight the needs and shortfalls. Then these needs and shortfalls need to be prioritised and then the most appropriate solution to address these needs should be sourced and then allocate monthly spend to address these needs and shortfalls," says Wayne.
.However, it is important to be realistic about what you can and cannot afford at the moment.
For instance, if 40% of your salary goes towards paying for policies, that might be an indication that you have taken policies that are either too high for your budget or that you need to cut down some of the policies.
Look for smart ways to see how you can save on insurance. In some instances, taking out insurance from the same broker can save you money. For instance, some insurance brokers offer discounts if you take out more than one insurance policy with them.
Wayne adds: "There is no benefit of dealing with multiple brokers and each broker only giving advice or 'selling' insurance for a need in isolation."
Therefore, before paying a lot of money towards insurances, Wayne says "it is advisable to consult a Certified Financial Planner who will look at a client's portfolio holistically and who will assist and guide clients through a financial plan to address needs and shortfalls."
Meanwhile, for more budgeting and personal finance advice, check out our JacPod podcast, The Money Podcast, where self-made entrepreneurs Justin Harrison and Dawie Bester go off script and tackle controversial money issues, providing an alternative perspective on everything related to personal finance and money. Because money doesn’t have to be complicated or boring.
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