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23rd November 2017
:: Scheme Member | Financial DIY: useful tips | Producing a financial plan

A step by step approach to producing a financial plan
 
Financial planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a home, saving for your child's education, planning for retirement or estate planning. The financial planning process consists of six steps that help you take a "big picture" look at where you are financially. Using these six steps, you can work out where you are now, what you may need in the future and what you must do to reach your goals.
 
The Benefits of Financial Planning
 
Financial planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances. For example, buying a particular investment product might help you pay off your mortgage faster or it might delay your retirement significantly. By viewing each financial decision as part of a whole, you can consider its short and long-term effects on your life goals. You can also adapt more easily to life changes and feel more secure that your goals are on track.
 
Can You Do Your Own Financial Planning?
 
The simple answer is yes. Some personal finance software packages, magazines or self-help books can help you do your own financial planning. However, you may decide to seek help from a professional financial planner if:
  • You need expertise you don't possess in certain areas of your finances. For example, a planner can help you evaluate the level of risk in your investment portfolio, adjust your retirement plan due to changing family circumstances or provide tax advice that will contribute to the planning process.
  • You want to get a professional opinion about the financial plan you developed for yourself.
  • You don't feel you have the time to spare to do your own financial planning.
  • You have an immediate need or unexpected life event such as a birth, inheritance or major illness.
  • You feel that a professional adviser could help you improve on how you are currently managing your finances.
  • You know that you need to improve your current financial situation but don't know where to start.
 
How To Make Financial Planning Work For You
 
You are the focus of the financial planning process. As such, the results you get from working with a financial planner are as much your responsibility as they are those of the planner. To achieve the best results from your financial planning arrangement, you will need to be prepared to avoid some of the common mistakes by considering the following advice: 
Set measurable goals
 
Set specific targets of what you want to achieve and when you want to achieve results. For example, instead of saying you want to be "comfortable" when you retire or that you want your children to attend "good" schools, you need to quantify what "comfortable" and "good" mean so that you'll know when you've reached your goals.
 
Understand the effect of each financial decision
 
Each financial decision you make can affect several other areas of your life. For example, an investment decision may have tax consequences that are harmful to your estate plans. A decision about your child's education may affect when and how you meet your retirement goals. Remember that all of your financial decisions are interrelated.
 
Re-evaluate your financial situation periodically
 
Financial planning is a dynamic process. Your financial goals may change over the years due to changes in your lifestyle or circumstances, such as an inheritance, marriage, birth, house purchase or change of job status. Revisit and revise your financial plan as time goes by to reflect these changes so that you stay on track with your short and long-term goals. 
Start planning as soon as you can
 
Don't delay your financial planning. People who save or invest small amounts of money early and often, tend to do better than those who wait until later in life. Similarly, by developing good financial planning habits such as saving, budgeting, investing and regularly reviewing our finances early in life, you will be better prepared to meet life changes and handle emergencies.
 
Be realistic in your expectations
 
Financial planning is a common sense approach to managing your finances to reach your life goals. It cannot change your situation overnight; it is a lifelong process. Remember that events beyond your control such as inflation or changes in the stock market or interest rates will affect your financial planning results.
 
Realise that you are in charge
 
If you're working with a financial planner, be sure you understand the financial planning process and what the planner should be doing. Provide the planner with all of the relevant information on your financial situation. Ask questions about the recommendations offered to you and play an active role in decision-making.
 
DON’T PANIC if something happens which seems to undermine your plans – get advice.
 
 
 
Adapted from an article by Christopher Wicks on 20 Nov 2007
Christopher Wicks is a Director of N-Trust Limited
 
 
 
 
 
 
 
 
 
 
 
"There is no substitute for expertise. Seek professional advice from an appropriately experienced and qualified adviser."
 
Mike Jones
MyCompanyPension.co.uk
 
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