Long-term financial planning is not taught in schools yet throughout their lifetimes, most people will need financial advice, and you can get more from this service by understanding the process. So, I’d like to cover some of the main areas to consider when you design or review your financial life plan with your adviser. In outline, the process is simple, but it’s important to take time to explore what you really want for your financial future.
Before I consider the different steps involved in putting a plan together, it’s worth remembering that your adviser doesn’t develop a plan for you – they work with you to tailor a plan to meet your needs and future hopes. By engaging in the development of your plan and with better understanding, there’s more likelihood you’ll do what you need to make your plan successful and meet your financial goals.
Step 1: Start with the essentials
When planning the holiday of a lifetime, we will all list the ‘must-see’ places for the trip. Likewise, when planning your finances, there are particular ‘must-sort’ money challenges. To help with this, I’ve listed below some of the big money questions you may face during your lifetime and identify solutions to meet your needs.
- Will you provide enough money for any financial dependents in the event of your death?
- Will you and your loved ones have enough money if you cannot work due to an accident or illness?
- Do you have enough accessible savings to cover short-term emergencies?
- Are you optimising your State Pension and other benefit entitlements?
- Are you on track to repay your mortgage before you retire and any other large debts you may have?
- Do you have (or on track to build) a big enough pot of money to stop or slow down from work in the future?
- Are you saving enough for any other life goals?
- Are you making sensible use of investments to offset the long-term risks from inflation?
- Are you using all your tax-free allowances?
- If you’re at or in retirement, do you have a robust plan to deliver a sustainable income from your savings?
Step 2: Define your goals
Once you and your adviser have discussed your financial priorities, you’ll need to estimate how much money you’d like to provide for each of your priority goals. Once you’ve done that, decide on the timeframes for these goals.
Step 3: Explore ways to get your plans on track
Next, you and your adviser will check what, if anything, you need to change to put your plan on track. Your adviser will need details of your financial situation, including your income, spending, mortgage and other loans, any regular savings, and the current value of your assets. Armed with this information, your adviser can undertake the necessary analysis and planning to get (or keep) your financial goals on track.
Step 4: Adjust your goals – if you need to
From the previous steps, you may discover you can afford to fund all of your goals or achieve a big goal earlier than you thought. Or, you may find you can’t afford to achieve all of your goals in the timeframes you’ve set. In this case, you and your adviser can discuss some of the alternatives such as saving more towards the goals that matter to you or possibly delaying one or more of your goals. It’s not always easy making these choices, but by engaging in the planning process you can ensure you’re in control of your financial future.
Step 5: Stress test your plan
It’s important to ensure your plan won’t break if unexpected events occur, so in addition to having enough life and health insurance in place, you’ll want to check how your finances would be affected by a significant stock market fall, for example, or a steep rise in interest rates. Again, your adviser can help you consider these scenarios.
Step 6: Put your plan into action
The final step is to act on whatever recommendations your adviser makes within your unique plan. Broadly speaking, financial planning is about designing a plan for tomorrow, so you can focus on what matters today. With the help of Sirius, these six steps will help you create a robust financial plan to achieve your goals. And the same steps can also be followed to review your progress yearly or when significant life events occur.