Financial Planning is for life, not just for Christmas – Part 2

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Continuing last week’s theme that Financial Planning is for Life, not just for Christmas; this week I am sharing a simple framework to help get you started.

At its core, financial planning takes goals, needs and objectives and designs a plan to achieve them. This process puts you in control of your financial future with clarity and confidence. It’s much more than “financial advice” which typically looks at single needs like “sorting a pension” or “setting up an ISA”.

In a nutshell, a financial plan should be about making the most of your life. We all know we are going to die one day, so why not aim to ensure that you have lived your life to its potential?  And with people living longer and being more active, and with new pension freedoms giving access and flexibility to everyone over the age of 55, financial planning is more important than ever as the traditional plan for retirement no longer applies for many.

Use this Financial Planning framework to help you get started:

  1. Establish your goals- Simply writing them down is a powerful act that will help them come true, rather than keeping them in your brain to make happen ‘some day’. They may take years of diligence to achieve so get clarity of what you want to work towards. They don’t need to be set in stone, in fact, goals are always changing as we grow and develop.
  2. Perform a Financial Audit on yourself by establishing the value of your assets and liabilities – Often these values are in different places so it can be hard to keep track. Think about all the different accounts and products you may have from current accounts and savings accounts, to your pension valuations and mortgage balance.
  3. Evaluate your current financial position.  The results of your financial ‘audit’ could be surprising, perhaps positively if your pensions and investments have grown more than you expected, or the results could be quite sobering meaning you need to increase the amount you save each month to meet your goals. Regardless, it is better to know where you stand today rather than bury your head in the sand.
  4. Develop your plan – create a “route map” for achieving your different goals – Start by working out your goals in life, in the short, medium and long term. Prioritise them, and think about the likely cost of those goals and when you will need the money. You can then start to plan your finances to work out how to achieve them. It’s about getting organised; being in control of your finances rather than letting your finances control you.
  5. Implement your plan – make the changes and make it happen – Making your life plans actually happen can be hard, especially if you’re unsure of the implications. For example, new pension rules haven given more freedom than ever before, but without careful consideration, there is the potential to over-spend or lose a significant proportion to the tax man if your distributions and other income take you over the higher rate threshold in any one year.

Working with a professional could be very helpful to help ensure your planning is comprehensive and the best fit for your circumstances. In my experience, our clients are happier following a financial planning process as they know that a professional planner is sitting on the same side of the table as them, working with them to ensure they achieve their goals. They see that their goals and aims in life are the driver of the process. They feel empowered and excited by the knowledge of what they need to do to achieve their goals. 

*The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.