What is Financial Planning?
Most people in Ireland, and indeed worldwide, might deem that they have been
satisfactorily served by those that they have purchased financial product from
whenever they needed it. And for most people this was more than adequate
especially if they were in the younger part of their life.
As we get older, however, our focus becomes less short term and more long term.
And that is the difference between financial advice and financial planning. To put
it into context, one might engage an electrician or a plumber to fix a short term
problem around a house whereas you would consult an architect if you were
looking to design changes to your house around your long term needs.
The same happens around financial matters. If we need finance to purchase a
family home we get a mortgage. If we need life assurance cover to protect our
family we buy a policy and if we need to start a fund for retirement we set up a
pension. The advice is to purchase product and indeed most financial advisers
operate in the product sales arena.
If, however, you want to find out if the mortgage will put a strain on your long
term finances, whether the life assurance cover is adequate for the lifetime of
those that it is intended to protect or if you’ll have sufficient funds available to
you in retirement including long term care, then a different approach is needed.
And that’s where financial planning comes in.
Financial Planning is the process of developing strategies to assist clients in
managing their financial affairs to meet life goals. This is the real difference.
Product purchase is a tactical matter and is, in a way, gap filling.
Financial Planning involves reviewing all aspects of a client’s situation across a
wide range of financially related activities, including inter-relationships among
often conflicting objectives. These objectives range from the need for long term
financing of old age and future health against the short term need for either
personal enjoyment and or the financing of borrowings. The latter aspects are the
short term gaps that we are so used to dealing with in our daily lives.
A few Irish advisers do both – look at the real long term needs as well as solving
the short term problems. But not many advisers operate in both spaces at the
same time.
The main reason is that it is easier from a work flow perspective to deal with an
immediate need and earn immediate income. Long term financial planning on the
other hand is, in truth, a drawn out process which can take months for clients to
really focus on what is really important to them.
This might sound like a strange statement to make as you would think that most
people would know what is really important to them. In my experience,
however, very few people take the time out from their busy lives to think about it,
instead reacting instinctively to whatever problems life throws at them on a day
to day basis.
From an advice perspective, financial planning is a more intensive and deeper
discussion as it involves looking at the entirety of an individual’s or family’s
financial persona.
Key steps to your own financial plan:
Irrespective of our client’s circumstances, we find that the following steps are necessary for
their own financial planning to be successful:
- 1. Work with an experienced and professionally qualified financial planner.
- 2. Set goals that are both measurable and achievable.
- 3. Understand that financial decisions you might take have consequences for other
financial issues.
- 4. Revisit your original financial plan regularly - the initial draft is only the starting
point.
- 5. Start today – don’t procrastinate and leave financial planning for when you are older.
- 6. Start with what you’ve got – financial planning isn’t just for the wealthy – the goal
is to improve your own financial standing
- 7. Be disciplined and take responsibility for your own affairs - no-one else can do
that for you.
- 8. Look at the big picture – financial planning is more than just a particular product
purchase or immediate need. It is a lifelong process.
- 9. Don’t confuse financial planning with investing. There are so many facets to a
person’s life – investing is only one element.
- 10. Speaking of investments, don’t expect unrealistic returns on specific investments
and remember that potentially high return investments are also high risk investments.
There is no such thing as a free lunch!
Don’t wait until a family crisis to try to set up your own financial plan
Setting Your Financial Goals
By setting financial goals it will help you take control of your finances, there are a number of
steps to following when setting financial goals:
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Identify your financial goal or goals
-
Establish what time frame to allow to achieve each goal
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Seek professional advice to identify the best savings and investments plans to suit your
requirements
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Monitor and evaluate your progress on a regular basis to ensure that you are on target to
reach your goal or goals
Why Set Financial Goals?
Unless you set up financial goals in life it is difficult to achieve financial freedom so the first order
of business in determining your financial goals is to make sure that they are realistic otherwise
you will become de-motivated and will fail to reach your goals. Break your financial goals down
as follows:
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Short Term
-
Medium term
-
Long term
This will give you a clear focus and a time frame when setting your financial goals. It will allow
you to evaluate and make changes to ensure you are successful in reaching your financial goals.
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