Building your own financial plan?

Often when I introduce the idea of building a financial plan to people it is regarded as an alien concept, but in fact, it is one of the key steps to successfully building your wealth. That is not to say that people do not have financial plans but very few people have it written down and even less have crunched the numbers.

The idea behind a financial plan is that at the end of the process that you have a strategy setting out your goals and objectives and a strategy on how you are going to achieve them. It is a reality and health check to determine whether your life plan which is often formulated informally is on track. Research has shown that people that have a financial plan are far more likely to achieve them.

There are many ways of building a financial plan one way to consider it has as being made up of three major pillars, lifestyle objective modelling, risk management and  investment strategies. Today I will concentrate on the first two, lifestyle objective modelling and risk management.

The foundation of any financial plan is a comprehensive review of your present position. How did I get to where I am today? What is important to me in my life? What do I want to achieve in life? For some people it can be straightforward exercise but for others it can be an arduous process. For couples, it is important for each partner to contribute to the process, as this ensures the creation of a meaningful plan based on a shared vision of the future. How many couples can claim to have that?

Once you set out the key objectives in your life they can act as key motivators for not only implementing the plan but in your personal and business life as well. Techniques of writing down your values and objectives somewhere where they are readily viewable on a daily basis can act as powerful reminder and to keep you motivated and focused.

The next step is to complete the financial modelling to determine if your goals are achievable based on your current financial position. There are a range of limited calculators available for free on Financial Services firms that can be used for this purpose alternatively a professional adviser will use appropriate software.

This modelling process provides real insight into whether you are on track to meet your goals.  If there is a financial shortfall this leads to a consideration of potential solutions or alternative strategies with the benefits and drawback of each course of action highlighted. Going through this process allows you to formulate a clear and informed strategy that maximises the probability of you achieving your goals. Knowledge of which can add to your overall happiness and confidence, a benefit that cannot be valued highly enough.

Risk management is being aware of the risks that may prevent you from achieving your objectives and taking steps to minimise the impact on your financial plan.

There is little benefit of having a perfect strategy to achieve your objectives if you have not considered the range of potential life events that can have an impact on the success of the plan. Applying a risk filter to your financial plan identifies the risks and threats to the successful implementation.

In the event of you or your spouse’s short term illness, long term disability or death how would this affect the financial security and objectives of the family?  The financial effects and likelihood of such events are universally underestimated by individuals and can have a devastating financial effect on families that are unprepared. The availability of insurances allows individuals to financially protect against such life events.

Another often overlooked risk relates to estate planning. Many families desire to transfer their wealth in a tax effective manner to the next generation but the current level of death taxes means the government is taking an increasing slice of people’s wealth.  The preparation of an estate plan ensures your wealth is transferred to your desired beneficiaries in the most tax effective manner available.

Understanding the risk associated with any investment strategy and how that links to your risk tolerance is one of the most challenging for investors. How much investment risk am I comfortable with? How much risk do I need to take? How much risk can I afford to take? What does risk mean to me? The answers to these question linked to the financial goal setting will determine what level of risk/return trade off you accept.  The concept of risk management even flows into the investment strategy in term is of selection of custodians, investment managers and Trustees.

In this article we discussed the importance of having a financial plan and the benefits it can provide everyone.  Whether you use a professional or not depends on your appetite for the project and the time you can apply to it. A good financial adviser will keep you on track and make you accountable for your action plan. A good plan gets implemented, a bad one does not.

Two key components of any financial plan is that of firstly identifying, prioritising and, modelling your lifetime goals and objectives. Secondly by applying a risk based approach in order to maximise the probability of successful implementation of your financial plan.

A key concept is that everyone can benefit from a financial plan so my advice is to get busy!

Trinity Financial Management can help you optimise your financial affairs, so can save time, save money and achieve what is important to you. Contact Frank on to find out more.

This article is provided on the strict understanding that it is for the reader’s general consideration only. Accordingly, no action must be taken or refrained from based on its contests alone.

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