What is financial planning?

Think of financial planning like you think about planning a journey. Everyone needs a little direction along the way, says Jason Witcombe.

Spreadsheets and a calculator

Think of financial planning like you think about planning a journey. Everyone needs a little help along the way, says Jason Witcombe.

Think about how much time you spend planning your summer holiday. Then consider how long you spend planning your retirement, which will hopefully be a multi-decade holiday. Is there a mismatch here? For most people I’m sure there is.

“Retirement won’t be much of a holiday without the right funds in place and the state pension alone is very unlikely to give anyone the retirement they dreamt of”

Pensions are boring, with reams of literature telling you about all the things that could go wrong. Speaking with your mortgage lender can be mind numbing to the extreme – being left on hold for 20 minutes and then being subjected to heavily scripted responses. It really is no wonder that some people are turned off by personal finance and that difficult financial decisions are put off for another day. Holiday brochures are simply more appealing than investment ones.

But retirement won’t be much of a holiday without the right funds in place and the state pension alone is very unlikely to give anyone the retirement they dreamt of.

Financial planning is about creating a long-term, coherent strategy to help you meet your lifetime financial goals and aspirations through the efficient management of your finances. It is about giving you peace of mind if you are “on track” and about creating direction to your finances if you aren’t.

I see financial planning as a process rather than a one-off exercise. If the process is strictly followed, the chances of meeting your objectives will be considerably improved.

The process could be summarised as:

  • Personal goals  – itemise the things you and your family want to achieve in life.
  • Current position – look at assets, liabilities, income and expenditure as well as other aspects like: health, family and your risk tolerance.
  • Financial analysis – how far away from achieving these goals are you?
  • Create plan – what actions can you take to get you on track?
  • Implement  – this is often the stumbling block but if action is needed, there’s no time like the present to get started.
  • Review – things always change so adjustments will be needed – review at least annually.

Just as some people pay gym memberships or employ personal trainers, others are happy going jogging or to the municipal swimming pool to keep fit. Some people will be able and willing to create a financial plan for themselves, whereas others will be happier to pay for the expertise of a financial planner to motivate them into the right action.

Those who are willing and able to do it themselves may still decide to pay someone to save them time and, you would hope, do a better job.

Whichever route you choose, your journey from A to B is likely to much easier and efficient if you take some time planning the route.

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About the author

Jason Witcombe is a Chartered Financial Planner at Evolve Financial Planning and also holds the internationally recognised Certified Financial Planner accreditation.