Map out your financial future today... not tomorrow
PROBLEMS, problems, problems … sometimes just existing seems ever more complex.
Especially when it comes to money – there is so much advice out there, so many investment products, it can all feel overwhelming.
Which is why, particular at a time of uncertainty, as we are in today, you should get back to basics and formulate a financial plan.
There are two parts to financial planning: defensive and constructive.
Defensive planning is about protecting what you already have. That incorporates protection cover – life insurance, health insurances, income protection.
The what-ifs. What if a breadwinner dies? What if I’m ill and can’t work? Do I have the resources to cope? Do I need to buy some insurance?
Do you have a cash reserve to make sure that falls in investment values don’t cause an immediate issue? Do investments and pension funds incorporate a level of risk with which you are comfortable?
Constructive planning is about building assets.
Regular savings – are you using the right vehicle? Cash-based savings for the short term and emergency reserve; ISAs or investment funds for medium to long term; pensions for retirement.
Are you saving enough? Are your existing savings, investments, pensions invested correctly? Are you taking advantage of all available tax allowances?
The Chartered Institute for Securities & Investment suggests: “Start by working out your goals in life. Prioritise them, think about the likely cost of those goals and when you will need the money, so you can start to plan your finances to work out how to achieve them. Don’t forget you also have to plan for some of the hurdles you may have to overcome too. It’s about getting organised; being in control of your finances rather than letting your finances control you.”
Moneyfacts, who project themselves as money comparison experts, state: “A financial plan can be thought of as a roadmap for your financial future.
“Consider your monthly budget. Knowing where your money is going – and how it can work better for you – can be key. Start by making a list of your income and outgoings, look for areas you can cut back on, and consider how much you could funnel into a savings account or pension each month.
“Think about risk. Before you start to ponder investment opportunities, it is important to consider if you can risk any losses. For example, those just starting to save into a pension in their 20s or 30s may prefer potentially higher yielding but more risky investments than someone in their fifties or sixties nearing retirement who needs certainty of the funds being available.
“Choose the right financial products to align with your goals. This can include things like savings accounts, mortgages, pension plans and insurance policies, particularly things like income protection and life insurance so you can protect your long-term interests. You may also be considering ways to build your investment portfolio, such as buy-to-let or the stock market, together with wealth management options.”
Is it worth paying a professional to guide you through this minefield? That is a highly subjective question and I would never be so presumptive to offer an answer. However, a 2019 study by the International Longevity Centre showed the value of wealth management advice. By 2014/16, “affluent” people who received professional advice between 2001 and 2006 were found to be better off by an average of £47,706 compared to those who did not.
Very few individuals find the time to sit and do a thorough review of their finances. I’ll do it tomorrow, but tomorrow never comes.
It is where Chartered Financial Planners can help. There’s a clue in the name.