Are These 7 Key Parts in Your Financial Plan?

A financial plan can take many forms, but the main purpose is to help you take control of your future.

A financial plan can take many forms, but the main purpose is to help you take control of your future. Your plan should:

a. Establish where you would like to be.

b. Confirm where you are now.

c. Lay out the steps for getting from ‘a’ to ‘b’.

There are 7 key areas that should be addressed in any successful financial plan.

1. Goals and Aspirations

A financial plan only becomes tangible once you are actually working towards something. Before you start with the more practical matters, you should think about what is really important to you.

Is your main goal a comfortable retirement? Moving to your dream home? Helping your children onto the property ladder?

Write them down. There is no limit to the number of goals you should have.

Once you have worked out your goals, consider the order of priority. Some will be realistic and achievable, possibly even in the next few years. Others may require a little more work and be further in the future.

If something is really important to you, write it down, even if it doesn’t feel particularly realistic at the moment. You might surprise yourself with what you can achieve when you have something to aim for.

2. Cash Management

Keeping enough cash can help to ensure that your financial plan stays on track. As a minimum, you should have:

• Accounts to cover your essential bills and regular expenditure.

• Short-term savings for holidays and gifts.

• Enough to cover any planned spending over the next few years – this is especially important if you are retired and rely on your capital to fund your lifestyle.

• An emergency fund with at least 3-6 months’ worth of expenditure.

Having a cash reserve means that you can cope with any unforeseen events without the need to dip into your investments or go into debt.

3. Planning for the Worst

What would happen if you became ill and were unable to work? Could your family still pay the bills if something happened to you? Are your goals still achievable even if the unexpected happens?

We can’t plan for everything, but we can help to reduce the financial impact of tragic events. For example:

• Life insurance to ensure your family’s security if you die.

• Critical illness cover to provide a lump sum if you are seriously ill.

• Income protection to replace your earnings if you are unwell for the long-term and cannot work.

4. Clearing Debt

There are different kinds of debt.

A mortgage can help you buy a property that will hopefully grow in value and provide you with security. Similarly, a student loan is an investment in your future.

Consumer debt is usually more expensive, short-term, and doesn’t contribute to your long-term goals.

A financial plan can help you to understand the difference and prioritise which debts should be repaid first. Or if other needs, such as paying into your pension, should take priority.

5. Investment Strategy

Your investment strategy is an integral part of your financial plan.

Before deciding on an investment strategy, you will need to consider the following:

• What level of return do you require from your investments?

• How much will you need to withdraw, when, and how often?

• How much risk can you cope with (emotionally and practically)?

• Will you invest regularly or with a single lump sum?

The answers to these questions can help decide the best asset allocation to achieve your goals.

A good investment strategy:

• Is focused on the long-term.

• Is tax-efficient, and aims to make use of reliefs and allowances.

• Holds a wide variety of different assets with an appropriate level of risk.

• Does not react to world events or every fluctuation in the stock market.

• Follows the evidence rather than biases or emotion.

• Keeps costs under control.

6. A Plan for Retirement

While retirement is just one goal in the course of a lifetime, it is possibly the one that requires the most planning to achieve. Your financial plan should lay out the key steps in preparing for your retirement, including:

• How much you need to contribute and the most efficient method (for example paying contributions personally or through a business).

• Where to invest your pension fund and whether the strategy should change as you approach retirement.

• Whether you plan to retire gradually or on a fixed date.

• How your other income sources and assets can contribute towards your retirement goals.

• How your income should be structured, making the best use of allowances, and using up less tax-efficient assets first.

7. Leaving a Legacy

Your financial plan should also include provision for what happens to your assets when you are no longer around, or when you cannot make decisions for yourself.

While this will require legal advice and a number of other documents, your financial plan can help to lay the foundations, address what is really important to you, and guide you in making other decisions.

Your plan should cover:

• Wills, to direct your Executors on the distribution of your estate.

• Powers of Attorney, so that you can appoint someone to deal with your important health and financial decisions if you lose capacity.

• Trusts, to gift assets without giving up full control.

• Gifts, to reduce the value of your estate and pass more of your money to the important people in your life.

• Appropriate strategies to reduce Inheritance Tax, providing these are in line with your goals, wishes and risk appetite.

If you have all 7 areas in hand, you will have the best chance of achieving your goals.

Remember, your financial plan is not a static document that you can refer to once and ensure financial security for life. It is a moving picture that needs to be consulted, refreshed, and tweaked regularly. Your circumstances will change over time and your investments will fluctuate in value. Regular reviews and sticking to the plan are just as important as creating it in the first place.

Speak to a member of our team on 020 7388 7000

Please don’t hesitate to contact a member of the team to find out more about financial planning.