As valued clients, you are no doubt familiar with our role in providing insurance or investment advice, but the following article from the Institute of Financial Advisers explains why a financial plan can be so much more. Please feel free to pass this on to any family and friends who may also benefit from the expertise we can offer.
If money worries keep you awake at night, you are not alone. A global survey by Financial Planning Standards Board (FPSB) found that most people feel challenged by their finances, with relatively few saying they are very knowledgeable about financial matters, or highly successful at sticking to their financial goals. According to the study, knowing whom to trust is the biggest barrier to working with a financial professional, even though consumers are interested in financial planning services to help get them on track financially.
“Money doesn’t take care of itself, and that fact can create a lot of anxiety,” says Michael Dowling, Chair of the Institute of Financial Advisers. “If you don’t plan where you’re going with your money, you may not end up where you want to be. A financial plan can get you on a path toward your goals, which can give you greater peace of mind—and likely, a better night’s sleep.”
A blueprint to reach your goals
Financial planning is the process of developing strategies to help you manage your financial affairs to reach your life goals. Think of it as a blueprint for your financial ‘house,’ or as a roadmap to get you to your goals.
“Most of us would not build a house without a blueprint or travel to a new destination without a map,” Dowling observes. “A financial plan is perhaps even more important because it addresses so many aspects of your financial life to get you on track toward achieving your goals. At the same time, a financial plan can help you manage unexpected financial emergencies that invariably come along, like losing a job or dealing with a serious illness.”
According to Dowling, you can do financial planning by yourself or with a qualified professional. Either way, a comprehensive process should address all aspects of your financial life. That means looking at your spending, debt, savings, investments, taxes, insurance, retirement fund and estate plan. “When you make a decision in one of these areas, consider how it will affect your overall financial picture,” Dowling says.
Financial planning is not just for the wealthy, either. You might decide to put together a financial plan for many reasons: to save money to buy a home or car, fund your children’s education, retire comfortably, make a charitable bequest and more.
A process to get you there
Dowling emphasizes that financial planning is a process—it’s not a product, a one-time event, or a pre-packaged solution. Instead, financial planning starts with your goals, needs, and unique situation, and the plan evolves from there. The financial planning process should include these steps:
• Define your goals, when you want to reach them and what they will cost. Write it down. This helps you stay accountable to your plan and more likely to succeed.
• Understand your current financial situation. List the value of everything you own and everything you owe. Track your monthly income and expenses. Some people find it difficult to face these money facts, but don’t be discouraged. Financial planning can help you improve your situation.
• Build a realistic plan to achieve your goals. Your plan might include paying down credit card debt, saving money in an emergency fund, getting more insurance, adding to your retirement savings or investing for your children’s education. If you have several goals, prioritize them and set a date for accomplishing each one.
• Take action. Don’t delay. That way, time is on your side to reach your goals. Have deadlines and be specific.
• Monitor your progress. Review your financial plan once or twice a year, or when there’s a major change in your life. Make adjustments to stay on track.
A guide along the way
Some people feel comfortable developing their own financial plan, but you may prefer to work with a professional who can help you prioritize your goals, analyse your financial situation, recommend solutions and make adjustments over time. That’s where a financial planner comes in. Just like an architect helps design a house and a travel agent helps map out a trip, a financial planner can help guide your financial life.
A financial planner brings discipline to your life. By checking in with you regularly a planner makes sure you are on track to reach your financial goals and support the lifestyle you want. They provide a useful mentor for those major financial decisions, as an independent third party who is removed from the emotions involved in many financial decisions. Having a facilitator who is impartial can also mean that everyone’s views are heard, especially in family business situations.