Your financial wellbeing supports many aspects of your life:

From building a secure foundation for your family, to enabling a comfortable retirement. But how many people take a systematic, considered approach to planning their finances beyond a budget or saving a little extra each month?

Financial planning offers a strategic, comprehensive solution to managing your finances, for now and the future. Effective financial planning can make your life easier, facilitate financial security, and see you achieving your life goals sooner.

So, what exactly is financial planning and how does it work? How can you use it to maximise your assets? In this guide, we explore these questions and present some practical strategies for finding the right financial planner. We’ll also offer insights into why you should integrate retirement planning into your financial plan as well.

What is financial planning?

Financial planning involves creating and implementing strategies to manage your financial affairs and accomplish your life goals.

Financial planning ranges from less complicated matters like saving for a holiday, all the way to complex goals such as building an investment portfolio or your retirement planning. For many it involves working with a professional, licensed financial planner for appropriate advice specific to your situation, so you can achieve your financial goals more efficiently.

Consulting a financial planner is similar to obtaining advice from your doctor about your health, or a personal trainer about your fitness. A financial planner will take a holistic approach to your finances, taking into account everything from your budget, savings and cash flow, to superannuation, tax and investments. They can also assist with things like debt management and most types of personal insurance, as well as retirement planning.

How does financial planning work?

It’s common for people to form long-term relationships with their financial planner, with regular consultations and updates – particularly when their life circumstances change or when they reach major milestones.

For example, a financial planner can give you advice when you’re thinking about expanding your family, getting married, income protection, or purchasing a home. As you reach more midlife stages, your goals might change and you might be focused more on healthcare, tax management, superannuation and investments. Nearing retirement, you might start focusing more on debt elimination, exiting your business, and preserving your assets. In retirement, you’ll likely be focused on aged care planning and estate planning.

Financial planning is about setting goals, creating a plan, and giving you peace of mind to ensure your financial future is secure.

  • Financial goals - An effective financial adviser helps you identify your goals and set realistic, achievable goals, for example to pay off your mortgage.
  • Financial plan - Your financial plan should be based on your goals, lifestyle, and circumstances. It should be a focused, personalised roadmap – with specific steps to take that you can easily understand. Your financial planner should make clear recommendations on how you can achieve your goals. Your financial plan can include a projection of your savings and investments, and will consider the risks, advantages, and potential limitations of the strategies implemented.
  • Implementation - If you’re happy with the proposed plan, your financial adviser will help you implement it, and will monitor your progress – making suggestions for adjustments when necessary.

How to maximise your assets through financial planning

Financial planning can maximise your assets and wealth with a personalised strategy for your unique situation - by ensuring your financial plan matches your opportunities, options, tax profile, earnings potential, and lifestyle at each new life stage. When regulations change, your financial planning strategy can then be adapted to ensure it continues to be tax effective and maximise opportunities to access income support or other benefits and concessions.

For example, superannuation can be an excellent, tax-effective way to build wealth for retirement, while the right investment structure and asset-allocation approach can minimise tax obligations and protect asset value. Additionally, cash-flow management, a clear savings plan, and optimised approaches to borrowing for investment could accelerate your wealth-building goals.

Financial planning can address these and other areas individually, however a major advantage is that it offers an integrated, personalised approach.

Financial planners also help you maximise your assets by identifying critical success factors and barriers to achieving your goals, including investment goals. By better understanding these, your financial planner can devise a powerful strategy to mitigate them. For example, if one of your top financial risks is losing your ability to earn an income, investing in income-protection insurance could be a key part of your financial planning strategy.

Your risk profile can further inform your asset allocation strategy. As an example, if you’re risk averse, you might hold more stable investments like bonds, rather than more volatile options like shares. This means you can grow your assets in a way you’re comfortable with.

How to find the right financial planner

Not all financial planners are the same. Ideally, you’ll end up working with an ethical, experienced adviser who acts in your best interests and takes the time to really understand your goals and preferences.

Note in Australia, the terms financial adviser and financial planner are generally interchangeable. Financial planners have strict regulations, and advisers are required to be certified.

When assessing a financial adviser, consider the following:

1. Identify your advice requirements

Start by considering the kind of advice you’re looking for so you can assess prospective financial planners against your needs. Some financial planners specialise in particular areas, while others are experienced in all aspects of financial planning. You might be looking for a comprehensive financial planning strategy for the long term. Alternatively, you could be seeking specific advice on investment and superannuation planning for now.

2. Research advisers

Once you’ve established what type of advice you need, you can start shortlisting advisers. Industry associate databases, recommendations from your accountant, friends and family, and even simple internet searches are all possible starting points.

For the financial planners you find, review their online profiles, experience, and qualifications to get a sense of their background.

Once you’ve shortlisted some advisers, don’t forget to check the Financial Advisers Register. The register provides information on their licensing, work history, qualifications, training, professional memberships, and products the adviser can give advice on. The financial adviser or their firm is legally required to have a Australian Financial Services License issued by ASIC.

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3. Financial services guide and Adviser Profile

Obtain a copy of their financial services guide (FSG), which financial advisers in Australia are required to provide. The adviser’s FSG will tell you about the scope of their services and their fee structure, including details of additional payments or benefits.

In conjunction with the adviser’s FSG, they will provide you with their Adviser Profile, which is an outline of the adviser’s qualifications and experience, the services they provide, the types of product they are licensed to deal in and how they are remunerated.

4. Initial consultation

When you’re ready, make an appointment for an initial consultation.

During this consultation, pay attention to whether the adviser is interested in your goals and situation. Questions you should ask include:

  • What are your experience, qualifications, and professional memberships?
  • How do you stay up to date with changes impacting your clients?
  • What training and ongoing professional development do you participate in?
  • Can you give advice on my current products? (Advisers are licensed to give advice on different types of products. Make sure the adviser can assist with your current super fund, managed fund, shares and other products.)
  • What’s your approach to getting to know new clients?
  • How can you add value for me?
  • I have multiple financial goals, so what’s the best way to manage clients with different financial objectives?
  • Will you regularly monitor my investments and keep me up to date?
  • Do you receive commissions, bonuses, or other payments for selling me a product?
  • What’s your fee structure for advice preparation, implementation, and ongoing monitoring?
  • What am I likely to be charged for this advice?
  • Can I obtain a detailed fee breakdown?
  • Will I need to pay ongoing advice fees if I decide to cease advice from you?

They should be able to communicate in an open, transparent way, and be able to explain complex ideas in simple language. They should actively listen to your questions, address your concerns, give you a clear understanding of their advice process and likely costs, and give you time to consider their advice before you agree to proceed.

8 major financial planning traps and mistakes

Effective financial planning sets the foundation for your financial success and achieving your life goals, however it’s important to be aware of the major financial planning pitfalls and errors so that you can avoid them.

1. Not having a plan

Failing to work to a formal financial plan is like trying to build a house without a blueprint. A financial plan is much more than action steps; it takes into account everything from your assets and liabilities to your long-term goals, so that you can successfully build wealth.

2. Not planning for worst case scenarios

It’s easier not to think about the unexpected things, even though not planning for contingencies can lead to costly delays and lost opportunities. Financial planning is also about risk management, so maintain an adequate emergency fund, and consider getting income-protection insurance. Update your estate plan so your dependents are taken care of no matter what.

3. Putting off saving

People are often tempted into putting off saving when their money could be working hard for them as early as possible. Make sure your financial planning incorporates a strong savings component. Ask your financial planner how you can best leverage the power of compounding.

4. Doing it yourself

Doing it yourself can lead to costly errors and lost opportunities for your finances, especially as circumstances change. A financial adviser can give you expert advice on complex issues like tax, legal structures for investments, and changing regulations, maximising your opportunities for preserving and building wealth.

5. No estate plan

Estate planning ensures your assets are distributed in the way you prefer, and it helps you take care of your dependents if the unthinkable happens. Estate planning can be an essential part of financial planning, allowing you to minimise tax and preserve wealth in the family when it’s transferred, so don’t overlook this important element.

6. Seeking a quick fix

Higher return investments are associated with greater risk and volatility. If you’re overseeing your own financial planning, you could fall into the trap of looking for a quick gain. Work with an experienced financial planner and you could avoid this by accessing expert advice on the best investment options for your situation.

7. Not communicating with loved ones

Keep your partner and adult children informed about finances, inherited family wealth, and other relevant financial matters. With open communication, you could avoid conflicts over money and relationship problems. Clear communication can also assist with managing expectations and eliminating legal disputes in the future.

8. Forgetting regular reviews

Tax and superannuation laws, the financial marketplace, and your own circumstances will change over time. Regular reviews keep your financial plans updated in terms of your lifestyle, goals, and assets. Also, they enable your financial adviser to have the opportunity to review investment performance and adjust your strategy to optimise returns.

Why you need to consider retirement planning as part of your financial planning

A financial plan incorporating retirement planning recognises that you’ll require a certain amount of wealth by the time you stop working.

It should project how your savings, investments, and assets will grow in the time to retirement. Ideally, it accurately visualises how these assets will generate a sufficient income stream when you do stop working.

Some of the reasons to incorporate retirement planning into your financial plan include:

  • Quality of life - A static financial plan designed for the accumulation phase of your working life might not adequately prepare you for a sufficient standard of living in the distribution or retirement phase.
  • Unexpected events - You’ll have more scope for errors and unexpected events, like market downturns or when personal areas don’t go to plan. It could give your investments time to recover, protect you against financial discomfort, and allow you to adapt your financial plan in response.
  • Compounding - You can leverage the principle of compounding by starting earlier rather than later. The more time you give your money to earn a return, the more you’ll earn.
  • Government incentives - Incorporating retirement planning lets you make smarter decisions when it comes to incentives like pre-tax super contributions, the low-income super tax offset, and government co-contributions. These can facilitate tax effectiveness while enabling your super balance to rise more quickly.
  • Opportunities - Integrating retirement planning lets you harness the changing opportunities you have at each life stage. For example, in mid-life, you’ll likely have higher wages and you might have paid off your mortgage, leaving you with more income to invest. Directing this into your super or an appropriate investment vehicle could have your retirement nest egg growing faster.
  • Stay focused - Incorporating retirement planning lets you stay focused on making sure you set aside enough money to retire, even when facing immediate financial stresses like mortgages and student loans.

Retirement might seem a lifetime away, but the sooner you start planning, the greater the likelihood you’ll achieve financial independence. Integrating retirement planning into your overall financial planning could mean you’ll be able to retire when you want to and enjoy a comfortable lifestyle during your senior years.

Financial planning supports wealth building and life goals

A successful financial planning strategy can not only assist you in achieving your life goals; it can simplify your finances and help you maintain your financial wellbeing and lifestyle. Working with a licensed, experienced financial planner is vital, and your financial planner can create a tailored plan to maximise your assets.

By taking the time to find the right financial planner, understanding common pitfalls in financial planning, and incorporating retirement planning into your financial strategy, you can establish a firm foundation for achieving your wealth goals. Ultimately, effective, expert-guided financial planning can empower you in living a happier, more fulfilling lifestyle at every stage of your life.

Prime is committed to protecting your assets and building your wealth, and we offer simple, honest advice to help you meet your unique needs, goals, and aspirations. For a discussion about how our expert financial planners can assist you with a personalised financial plan, contact us today.

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