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Financial Planning

A financial plan will typically include the following core sections:

  1. Objectives

  2. Attitudes

  3. Assumptions

  4. Assets & Liabilities

  5. Income & Expenditure

  6. Retirement Planning

Objectives: Setting Your Goals

Don’t rush into this and remember that your goals must be realistic in the context of your circumstances and must be agreed with your partner in order to be achievable.

You may know already exactly what you want to achieve and it may be something as straightforward as ridding yourself of credit card debt within, say, 2 years. However, your goals may be more complex and related to retirement, to changing direction with your career (perhaps taking a drop in income to re-train), starting a family or buying a new home.

During this process, open your mind: the most worthwhile goals are not purely financial but money is the tool that we often need to facilitate the realisation of our dreams.

If you are having trouble focussing on what you really want to do, consider the following questions:

• If you knew you would die tomorrow, what would you most regret not having done in your life?

• If you knew your life would end in one year’s time, what would you most like to do in the time available?

• Similarly, if you knew that you had 10 years to live, what would you like to achieve in the years that you had remaining?

Write down all the ideas that you have, discuss them and eliminate those that are of least value to you. Record your final list of goals and assign a timescale to each: keep this list somewhere visible where you can refer to it regularly for motivation to stick to your plan.

You are likely to have more than one goal for the:

• Short term - to be achieved in the next 5 years

• Medium term - to be achieved in the next 5 – 10 years

• Long term – more than 10 years

You will need to prioritise but try to make some progress towards all of your goals simultaneously

Creating your financial plan

All the work that you have done to date means that you already know:

• what goals, in order of priority, you are trying to achieve, over what timescales.

• the approximate cost of achieving those goals allowing for inflation

• what disposable income you have to apply to those objectives, having made provision for life assurance etc to protect yourself and your family.

• what assets you have already built up that you can apply towards your goals

The next step is to get the basics of your plan together – ie work out your strategies. How are you going to best apply the funds available to each of your goals? You will need to do some arithmetic but it won’t be too difficult. Plan to :

1. reduce short term debt and establish an emergency fund (preferably at the same time but, if you cannot manage that, then reduce short term debt first)

Then separately, or preferably simultaneously:

2. fund for short term goals (less than five years)

3. fund for medium term goals, and (five to ten years) 4. fund for long term goals (10+ years).

Investment Insight