Nobody wakes up of a morning wishing they had a Financial Plan; we just don’t think that way.
However, what we do all have are hopes, dreams, wishes and fears.
There are things we want to achieve in life and things we want to avoid happening to us.
The problem is we are often so caught up in daily life we don’t take time to consider what really does matter to us and what we really want to avoid.
So what makes a good Financial Plan an excellent one?
Here is my checklist:
1. Don’t think of it as a FINANCIAL Plan, think of it as a THINGS I MUST ACHIEVE IN LIFE Plan.
2. Take time to think about what really matters to you. Do it with a loved one so you can share each others hopes and fears. I am willing to bet there will not be many products on your list but there will be lots of experiences to enjoy and places to visit.
3. Are they specific, realistic, achievable, relevant and time framed? If so you can turn them into meaningful (financial) objectives.
4. Segment them into short, medium and long term horizons. Are any achievable right now? If so, do them. If not, what do you need to make them achievable.
5. Compile a list of everything you own and everything you owe. This will help you understand what is affordable. What is your net worth? How are you going to repay any debts?
6. Take time to understand what the current cost of your lifestyle is (and what your desired lifestyle will be). Are you wasting money on areas that aren’t going to help you achieve your goal?
7. Make prudent assumptions for growth on your assets, income changes and inflation.
8. Using your net worth, income and lifestyle costs and by applying the prudent assumptions you can paint a picture of what your financial future looks like and whether your ‘THINGS I MUST ACHIEVE IN LIFE’ list is achievable or not.
9. If things are looking rosy, keep going. Perhaps you can even bring forward the date you achieve your ambitions.
10. If things aren’t looking too rosy you can consider what actions you need to take to make them achievable: put simply how can you spend less and save more and what is the most efficient way to save? This will vary according to your short, medium and long terms goals.
11. How comfortable are you with taking investment risk (i.e. investing in stock markets). The more you are prepared to put into stock markets the greater long term returns you may expect to receive but a balance is required: you don’t want to jeopardise your dreams due to the vagaries of the global stock markets.
12. Make use of the available tax allowances and tax efficient products (pensions & ISAs for example) so that wealth is not passed onto the Exchequer needlessly (but paid where it is required to be!).
13. Ensure investment charges are kept to a minimum so wealth is not needlessly passed onto asset managers.
14. Review: Financial Plans are not one off activities but are constantly evolving to take into account changes in personal circumstances, legislation, taxation and investment markets to ensure that the achievement of the previously (or newly) identified goals are achieved.
15. Engage the services of a CERTIFIED FINANCIAL PLANNER to make sure all of the above are done effectively and efficiently.
