The importance of financial planning: Avoiding common pitfalls

While many South Africans are doing their best to save, too few understand the difference between budgeting, saving, and financial planning. As a result, they often end up using their savings to cover everyday expenses, leading to frustration, shortfalls, and savings that vanish by month-end. This confusion is one of the biggest barriers to long-term financial well-being in the country.

The problem is that many people believe saving alone is enough, but without a financial plan that shapes their daily habits and future goals, those savings are not sustainable. They disappear, and then there is no structure to rebuild them. That is where people get stuck, reacting instead of planning.

Recent data from the FSCA’s Retail Financial Customer Behaviour and Sentiment Report supports this. The report shows that most people re-engage with their financial products only after a major life event. Budgeting means planning how you will spend your income to cover everyday costs and unexpected expenses, or emergency repairs.

But financial planning is broader. It is about identifying both immediate and long-term goals and making sure you have the money when you need it. Many families confuse budgeting with a financial plan.

This confusion has real-world consequences. In the absence of proper planning, families either overcommit to long-term savings vehicles they cannot access when needed, or they save in investment vehicles so liquid that the funds are quickly depleted without direction.

You need to know the goal of your savings. If it is for retirement, it needs time and discipline. If it is for your children’s education, you need to calculate how much you will need and when, and then choose the right investment vehicle that allows your money to grow but also be available when school fees come due. Too many people do not build this kind of structure into their financial plan.

This misalignment often starts with good intentions but ends in frustration. I recall guiding a 21-year-old who received a R500,000 inheritance and was placed in a rigid five-year investment plan. That did not work. She had no access to the funds for five years, right when she was entering adulthood and needed financial flexibility for things like education, transport, or finding work.

In cases like these, what is needed is a solution that allows for growth, ideally one that keeps pace with inflation, but also offers the flexibility to access funds when life demands it. It is about matching the product to the person’s life stage and goals. That is why financial advice must be tailored. The plan must fit the person and not the other way around.

What is clear is that South African households need help moving from reactive to proactive financial behaviour. Financial well-being is not just about having money in the bank. It means being able to meet your daily needs, handle financial shocks, and still plan confidently for the future. It is about discipline, resilience, and freedom.

To help consumers move beyond short-term saving toward structured, long-term financial planning, here are five practical steps that create structure, purpose, and resilience in your financial journey.

1. Set Clear Goals: Think about what you want to achieve, whether it is buying a home or paying for your child’s education. Write them down.
2. Quantify Your Dreams: Assign a cost to each goal. It is easier to plan for “R50,000 for a car deposit” than just “saving for a car”.
3. Match Products to Your Needs: Short-term savings need liquidity. Long-term goals need discipline and growth. Do not lock up emergency funds.
4. Use a Financial Adviser wisely: A good adviser, acting as your financial partner, helps you define your goals and select products that fit your life stage and risk profile.
5. Think in Pillars: Your plan should cover financial well-being creation (saving and investing), financial well-being preservation (retirement and long-term planning), and financial well-being protection (insurance for illness, disability, or retrenchment).

In the end, saving without a plan is like building a house without a foundation. To protect your money and your future, you need more than good intentions. You need a financial plan.

* Mrara, Regional Manager at Old Mutual Personal Finance.

PERSONAL FINANCE