Financial Planning


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Failing to plan, is planning to fail.  The number one reason that people struggle financially is simply because they do not have a financial plan.

So What is a Financial Plan?

A financial plan is a comprehensive strategy designed to help individuals achieve specific financial goals and prepare for unexpected life challenges or events.  Money Advice financial plans include income; expenditure; saving and budgeting; investing; tax planning; asset allocation; risk management; retirement planning; event funding (e.g. education); estate planning and insurance.

The Money Advice financial review process is summarised in the diagram below:

Although everyone's situation is different, many people's main priority is creating excess income (income left over after living and lifestyle expenses) so they can invest in passive income (cash flow) producing assets.  This is what the income and expenditure review section focuses on.

The next priority is creating a savings account that can be drawn upon for day-to-day expenses and financial emergencies such as household and car repairs.  The will usually be an instant access interest bearing savings bank account or Cash ISA.

The next stage is looking at protecting (insuring) what is important to you.  This will include:

   - Household (Building & Contents) Insurance
   - Motor Insurance
   - Health Insurance
   - PPI (Payment Protection Insurance)
   - Life Insurance

If something happens to you or your loved ones, you will want to be protected from a financial perspective.  The last thing a person wants on top of the pressure that comes with redundancy, illness or even death is financial stress.

The next important stage is to get your money working for you by investing in assets such as ISA funds, pension funds, stocks and shares, commodities and property.

This is where your attitude to risk is important.  If you are conservative when it comes to investing, then you may want to invest in conservatively managed funds or index tracker funds.  Your minimum aim is to at least consistently achieve returns above inflation.

If you are prepared to invest more aggressively, then you may consider individual stocks and shares in developing markets for example.

This level of more speculative, aggressive investing either requires a lot of knowledge on your behalf, or good financial advice from a financial adviser who has proven results.

Another important stage in financial planning is tax planning.  Your goal is not tax evasion, but tax avoidance.  In other words, you want keep as much of your assets and income to yourself as possible and give away as little as possible to the tax man.

To quote Scottish Politician and Judge Lord Clyde (1863 – 1944)...

"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue."

Retirement planning is an area that should be given attention as early in life as possible.  One of the main reasons for this is the magic of compound growth.  This means that the longer you wait to start saving for retirement, the more and more money you have to invest each year as time goes by to reach your goal.

By starting early and investing wisely, you can start to tap into almost exponential capital growth.  Like using ISA's, investing using your pension allowance is also one of the most tax efficient ways to grow your money.

Finally, you will want to think about where you want your wealth to go to once you die.  This may include reviewing your will and sitting down with an IFA to discuss what you want to happen to your wealth from a legal and tax efficient perspective.

Conclusion

If you don't make and follow a financial plan, you will fail financially.  Period.  Creating a financial plan will give you focus, motivation and peace of mind.

Useful Links

>>> Example Financial Plans
>>> Increase my Income
>>> Save Money on my Utilities
>>> Save Money on my Car & Household Insurance
>>> Save Money on my Life Insurance Premiums
>>> Savings Accounts
>>> Cash ISAs
>>> Learn about Stocks & Shares ISAs
>>> Learn about my Pension Options
>>> Learn about Tax
>>> Take out a Will
>>> Learn about Inheritance Tax (IHT)

 

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