The importance of financial planning

  • Financial planning
  • 6 minute read

We all have financial goals and aspirations in life. Yet often, these goals can seem out of reach. In today’s complex financial environment, achieving your financial goals is not always straightforward.

This is where financial planning can help. Designed to help secure your financial future, a financial plan seeks to identify your financial goals, prioritise them, and then outline the exact steps that you need to take to achieve these goals.

In this article, we take a look at what financial planning involves and explain why it is important.

What is financial planning?

Financial planning involves evaluating your current financial situation, determining your short and long-term financial goals, and then creating a strategic plan to meet these goals. The objective is to create an ongoing process that will support your current and future requirements, and provide you with peace of mind in relation to your finances.

Since everyone’s financial situation is unique, every financial plan will be different. However, you can expect a financial plan to review the current state of your finances, list your main financial goals, provide a roadmap that details how to achieve the goals you’ve set, explore your own attitude and tolerance to the financial risks you are happy to take in attaining those goals, and provide projections of your possible future wealth.

While it’s possible to create a basic financial plan yourself, it’s generally a good idea to develop a plan with the help of a qualified financial planner. A financial planning specialist will take the time to discuss your current situation and your personal goals in detail, and then put together a customised financial plan that is tailored to your requirements.

Now that we have covered the basics of financial planning, let’s look at why it is important.

It can help you achieve your goals

One of the main benefits of financial planning is that it prompts you to list your goals for the future. By clearly identifying and prioritising your financial goals, you can better understand how each financial decision you make impacts your life.

Everyone’s financial goals are different. For example, your main financial goal may be to save up enough money to live comfortably in retirement. Alternatively, it may be to save up the money to send your children to a top school. No matter how specific your financial goals are, a tailored financial plan can be constructed with your personal goals as the key focus.

This is where a qualified financial planner can be of assistance as they will be able to help you determine exactly how much you need to save and invest on a regular basis to achieve your goals. A planner will also be able to make recommendations in relation to the best asset classes and investments to help you achieve your goals.

It provides clarity and peace of mind

Financial planning can also bring clarity to your financial affairs. Because it’s an ongoing process, and involves reviewing your finances on a regular basis, it can give you an idea of whether you’re on track to meet your goals. By regularly analysing your financial situation and monitoring your progress towards your goals, you’ll have a better understanding of where you’re at and what you need to do going forward. This can help take the stress out of managing your finances.

Moreover, financial planning is a dynamic process meaning that your plan can be adjusted as your goals and priorities change. You may not always know what the future will hold, and your goals could change due to changes in your circumstances. However, with a sound financial plan in place, you can relax knowing that whatever happens, you’ll be able to weather any life changes. A financial plan isn’t simply a static document, but instead, a tool that can be used to help you make adjustments to your finances as your life evolves.

It’s holistic in nature

Finally, another reason that financial planning is important is that it is holistic in nature. For example, instead of viewing your savings, investments, and pensions in isolation, it will consider all aspects of your financial situation together. In addition, the financial planning process will also consider a number of important personal finance areas that are often neglected including:

  • Tax planning: tax considerations are an integral part of any financial plan. By structuring your finances tax-efficiently, financial planning could reduce the amount of tax you pay over your lifetime substantially.
  • Risk protection: insurance plays a vital role in any financial plan as it can help protect you from the unexpected. Without adequate risk protection in place, unnecessary hardship could be placed on the people that are most important to you.
  • Inheritance tax (IHT): IHT is complex and can cost you a considerable sum of money if not planned for early. A financial plan will consider IHT and help you plan ahead to minimise liabilities.

In conclusion, financial planning offers many benefits. Not only can it help you achieve your financial goals, but it can also provide you with a great deal of clarity and peace of mind in relation to your finances. The value of any investment can go down as well as up and you may get back less than you originally invested.

To find out more, or if you have any questions about financial planning, don’t hesitate to request a call back.

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