Thinking of investing? First consider financial protection

THE financial services industry offers a sophisticated array of instruments and products you can use to ensure financial security and build wealth.

- MARTIN HESSE

But what is important is the order in which you use or acquire them - in other words, before diving into the world of finance and investing, you need to get your priorities straight.

This was brought home to me in a recent LinkedIn post by Christo Muller, a financial adviser at Enriching Life Financial Services in Kenilworth, Cape Town. Muller reported on the following client engagement, which, he says, is a relatively common scenario among younger clients:

“A 28-year-old came to see me last month. Good job. Excited about investing. He’d been putting R500 a month into a unit trust fund for six months. He said he felt like he was finally ‘adulting’ with his money.

“Then I asked: ‘What happens if you lose your job tomorrow?’

“Silence.

“No emergency fund. No income protection. No life cover. Just R3 000 in a unit trust fund that he’d need to cash out (at a loss) the moment anything went wrong.”

Muller says this is a “backwards” approach to financial planning: “People rush to invest before they’re ready to invest.”

Investing can only begin once you have your other financial ducks in a row. As Muller says, it’s about building wealth in the right order.

So what, when you're starting on your wealth-building journey, should you have in place before you can start putting surplus income into long-term investments?