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What is financial planning?

Category: Financial Planning

Financial planning is key to resolving worries about money. It may be useful to think about financial planning in terms of some common concerns:

  • Will we be able to support our current standard of living in retirement?
  • Can we manage financially if one or both of us needs long term care?
  • What happens to my partner if I die (or to me if they die)?
  • How would one of us being unable to work for a prolonged period affect our finances?
  • What happens if the markets deliver poor returns over the period when I am invested?
  • How can we help the children and grandchildren without compromising our future?

Proper financial planning helps to resolve these kinds of questions. It helps people feel confident they have the financial flexibility to survive whatever life and the markets may throw at them.

Work out what you want

Most people have concerns about what the future holds and have a strong desire to put their finances in order. But most people lack a clear vision of what you want their future to look like. They also lack the confidence their existing financial products will get them there.

The first and most vital step is to be clear about what is important to you. Before you can plan, save, or invest, you need to have an idea of why you are doing it.

The next step is to use what is essential to you to help make some guesses as to what your goals are. Yes, guess. You do not know for sure. So, guess. Make it the best guess…but guess.

Guessing at goals is the process of putting some stake in the ground and saying, “I think I will head that way…”. If you anchor these guesses to what is important to you, the direction should be correct.

Work out what you have got to plan with

The next step is to identify the resources you have available to you. Start by gathering each document and putting copies of the relevant pages in a file. Alternatively, you could scan them and set up a simple filing system on your PC.

You are looking for statements including the current value of each item. Some items do not have a monetary value, but you should include them because of their importance to your overall financial picture.

Crunch the numbers

Once you have a list of goals (guesses), we will need to know how likely you are to achieve them.

For some, this may mean tough choices. They may have to save more, retire later, downsize the house, or leave less for the children. For others, it might mean spending more, gifting money or pursuing philanthropic interests. Being empowered to make sensible choices is the aim of the planning process.

Implement the plan

An analysis of your income, expenditure, assets, and liabilities enables the creation of a financial strategy or plan for you. In some cases, you might not need a product, or the products you already have might be the right ones for the job.

Where you do need one, it is likely to be from one of three primary groups:

  • Covering you and your family in the event of misfortune
  • Helping you save and invest for the future.
  • Providing you with an income when you retire

Ensuring you take the right options available to you will only help your chances of success.

Repeat the process and course correct

A good financial plan is an ongoing process, not an event. We can revise it over time as things change. Unexpected things will happen, no matter what. The key to any real plan is acknowledging it will be wrong. This is the only thing we know for sure.

Some of the decisions you may need to make may relate to events in your life. Alternatively, they may be of a more technical nature which may require you to seek help. On some occasions, however, there will be little for you to do other than to update the numbers.

In conclusion

There is no doubt with a bit of time and effort anyone can create a financial plan. However, the DIY route will not be right for everyone. Often having an impartial observer to challenge your thinking can be invaluable.

Feeling confident about the future and having the time to enjoy the opportunities money provides is what matters. This is far more important than worrying about the last 12 months market noise making your portfolio’s value fluctuate daily. It is also more important than worrying neither the portfolio nor the plan has changed much recently.

Delivering peace of mind may sound a bit clich├ęd, but it is the goal, consequence, and value of excellent financial planning.

Want to find out how financial planning could help you? Feel free to book in a free no-obligation chat here or get in touch.

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