Setting up a budget and a savings strategy are some of the most basic things you can do to improve your financial health, but how many people have a systematic, integrated approach for managing their finances? This is where financial planning can add significant value for everyone, regardless of your life stage, income level, or wealth.
So, what is financial planning and how does it work? In this guide, we explore what it is and how it can work for you.
What is financial planning?
Financial planning is much more than investing. It usually involves working with a professional financial planner to identify your goals and then formulating strategies to achieve them. This includes long-term objectives like buying a house or planning for retirement, as well as short-term goals like meeting your ongoing expenses. With the right expert advice, financial planning can help you achieve your financial and life goals, by ensuring your financial affairs are well managed through a holistic, integrated approach.
Financial planning does this by drawing on the expertise of experienced, qualified financial advisers who understand the technical, complex aspects of managing money and wealth. It can encompass considerations like tax laws, the complexities of different investment products, and optimal investment structures – and their combined implications for your personal situation. This allows you to adopt a truly strategic approach because your financial plan takes all the relevant factors into consideration.
Your financial planner can assist you with smarter decisions about your savings strategy, budgeting, asset allocation, superannuation, mortgage repayments, budgeting, and cash flow management. They can also help with debt strategies, insurance, downsizing, retirement, and managing risk and planning for contingencies.
Ultimately, financial planning can help you with setting goals and formulating a clear strategy for achieving them – for financial independence, security, and wellbeing throughout different life stages. It can assist with simplifying your financial management as well, making what you’re doing clearer and easier to understand, and more effectively managed. Financial planning can give you extra confidence that your future is secure.
How does financial planning work?
In Australia, financial advisers or their employers need to be appropriately licensed. You can see a financial planner for guidance on a specific issue – for example, you could consult a financial planner when you reach a major milestone in life (marriage, expanding your family, or retirement) or alternatively you can consult your financial planner for a comprehensive plan addressing your current lifestyle goals in addition to your long-term wealth-building objectives.
It’s common for people to maintain a long-term relationship with their financial planner.
Financial planning usually involves three key elements: goals, plan, and implementation.
The financial planning process should start with your goals. Before talking about your goals, your financial planner will likely ask you questions and assess your situation by looking at your assets, liabilities, expenses, and income, along with any problems or queries you might have. Your financial planner can support you with identifying your goals, making sure they’re realistic and achievable, and prioritising your goals so you can tackle them in the most efficient way.
Your goals can be as straightforward as saving up for a holiday, or they might be more complex, like planning for retirement or building an investment portfolio according to your risk tolerance or risk profile. Your goals are the foundation for your financial plan.
Once you’ve identified your goals, your financial planner can help you with creating a financial planning strategy. This is a personalised roadmap in the form of detailed, written advice laying out specific steps to take, whether your goal is paying off debt or minimising your tax obligations.
Your financial planner should clearly communicate any potential risks, weaknesses, benefits, advantages, and gains of the plan they recommend. The plan could also include projected savings, investment, expected returns, inflation, and other relevant projections to help you visualise what your finances might look like in 5, 10, or 20 years and beyond.
Just as with deciding on your goals, when formulating a plan your financial planner will review your unique circumstances, lifestyle, and personal preferences (like risk) so your plan is personally tailored to your situation.
If you’re happy with the proposed plan, your financial planner will assist you with the implementation. This can involve anything from setting up the right investment structure to carrying out tax-optimisation strategies and making additional contributions to super. It should also include regular reviews to monitor your progress and make any adjustments if necessary. Your financial planner helps you stay motivated and on track to achieving your goals during the implementation stage.
Bear in mind that financial planning isn’t only for high-net-worth individuals. Regardless of your level of wealth and financial health, financial planning could offer benefits for you. It can result in more efficient management of your finances and ensure your money is invested in the most tax-effective ways.
Financial planning helps you achieve your life goals
At its core, financial planning is about devising smarter, personalised financial strategies to support your life goals. By getting the right expert advice from a financial planner, you can make smarter decisions about managing your wealth, working to a roadmap personalised for your goals and preferences, and ensuring you stay on track.
Ready to achieve your financial and life goals? Prime can help you with simple, honest advice for all your financial planning needs. Contact us today to find out how our licensed, experienced financial planners can guide you to financial well-being.