- Financial planning
- 4 minute read
What does success look like to you? To help you get there, we’ve outlined 7 effective financial planning tips to implement today.
When it comes to financial planning, we all have different ideas of what success looks like. But there are certain aspects that everyone should consider. These aspects can help you work towards your objectives.
Financial planning involves sitting down and working out what’s important to you and your family and strategically planning how you will meet your financial goals. This ongoing process can be challenging for many, and may not always feel like a priority. Achieving your financial goals requires an honest look at how you are doing and where you see yourself in the future so you can build a comprehensive plan to get there.
In this article, we share six top financial planning tips to help you create a robust financial plan that will pave the way for financial success.
Financial Planning Tip #1: Make time for establishing your financial goals
We all know how important planning and goal setting are in the workplace. We have performance management systems in place to allocate appropriate SMART goals, which inspire and motivate people to go above and beyond. This same mentality needs to be prioritised when it comes to financial planning.
Perhaps the most important financial planning tip we could give you is to take the necessary time for financial planning. This involves establishing your short, medium and long-term goals. You need to know what you want to achieve and by when. This exercise will help you understand your own needs and expectations, and it will also help you realise when your goals have been achieved. You need something to use as a quantitative yardstick to measure success and progress. This is something people are waking up to these days, with millions of Brits going on a 'financial diet' this year and creating financial goals to achieve.
This stage of financial planning may involve looking at what large purchases you expect to make, such as purchasing property or renovating your home. You might also consider the later stages of life and when you’ll retire. It’s best to discuss your goals with those you’re closest to and make plans together so that you are well-aligned.
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Financial Planning Tip #2: Evaluate your current financial position
A brutally honest evaluation of your assets, liabilities, incomings and outgoings will provide you with a starting point. You’ll be able to see clearly how you’re doing and may find areas you can improve on. One example is debt. Debt can often have high interest, so when you begin your financial planning journey, you may decide that now is the right time to pay it off.
The reason this financial planning tip is so important is because many of us are out of step with regards to our financial planning. The reality is, what most Brits think they know about personal finance is wrong, and not all of us are crystal clear on our current financial status.
Financial risk protection plays a vital role in any financial plan as it helps protect you and your family from unexpected events. You should ensure you have adequate protection that, if needed, can help your loved ones in the case of an emergency.
Financial Planning Tip #3: Check you’re using all of your tax allowances
Utilising your tax allowances and reliefs are an effective way of reducing your tax liability and making considerable savings over a lifetime. The UK tax system is complex and its legislation often changes, so it’s best to work with a financial planner who can consider how your individual circumstances affect the benefits you may be able to find and take care of your tax planning. They can ensure you’re making the most of tax allowances, so you don’t end up paying more than you need to.
Financial Planning Tip #4: Create a financial plan
At this point, you’ll have a good idea of what your goals are and where you currently are. The next step is to plan for where you want to get to, which will likely involve looking at how much you need to save and invest on a regular basis to achieve your goals.
A financial planner can help to make recommendations on the ways you can invest your money across the most suitable asset classes for you.
There are other elements to include in your plan:
- Putting in place a will to protect your family
- Thinking about how your family will manage without your income should you fall ill or die prematurely
- Creating a more efficient tax strategy.
If you are just getting started and you’re doing this on your own, remember that your financial plan doesn’t need to be perfect. What’s most important is that you get everything down on paper so you can better visualise your plan, which will make it more real for you. Finessing the plan and tweaking it in accordance with your changing expectations and preferences will come with time.
Financial Planning Tip #5: Set a budget and stick to it
When you are trying to get ahead financially and achieve your financial goals, budgeting is hugely important. If you want to know where your money is going and how much is being saved, you need to budget. If you set a realistic budget and make an effort to stick to it each month, you stand to save hundreds (or even thousands) of pounds each year. What's more, budgeting will really highlight how prone you are to impulse buying, which will help you curb your habit.
Financial Planning Tip #6: Plan for retirement
Retirement is a time that many look forward to, where your hard-earned money should support you as you transition to the next stage of life. Unfortunately, when it comes to retirement planning, not everyone has concrete plans in place. In fact, 4 in 10 Brits doubt they will have enough money to live on in their old age. What's more, many Brits underestimate how long they'll live, which means they may end up short-changing themselves as a result.
The number of options available at retirement has increased with changes to legislation, which has brought about pensions freedoms over the years. The decisions you make regarding how you take your benefits may include tax-free cash, buying an annuity, drawing an income from your savings rather than pension fund, or a combination.
Though it might feel a long way off, beginning your retirement planning early gives you the best chance of making sure you have adequate funds to support your lifestyle. You may have several pension pots with different employers, as well as your own savings to withdraw from. This financial planning tip can be hugely effective at giving you peace of mind when you need it the most.
Financial Planning Tip #7 Monitor and review your financial plan
There is no point in making a plan and never returning to it. You should expect to make iterations as life changes.
Set a formal yearly review at the very least to check you are on track to meeting your goals. Meeting with a financial planner for this is highly beneficial as they can provide an objective third-party view, as well as the expertise to help advise you with financial planning issues. While this will carry a cost (which will be outlined before any chargeable work takes place), it’s highly likely that this will be more cost-effective in the long term.
Financial planning can be a lengthy process which some people find intimidating. Though these financial planning tips will help you get started, you might want some extra help or questions relating to financial planning.
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