Financial Planning

A financial plan is used to analyse your financial situation, as well as your goals, and from that information, address areas that could be improved. It can help in many situations, especially for those looking to take the next step in their life, such as getting married, purchasing a home, having children or retiring.

Part three of this three-part series provides a guide to what you’ll receive from a financial planner and how your goals will be met.

This blog post at a glance:

1. Receiving your advice
2. Financial position and goals
3. Investments and risks involved

Receiving your advice

Once you have selected a financial planner you’re satisfied with, a statement of advice will be provided to you. The document will state who is covered by the advice, for example yourself, partner or children and provide a summary of your financial situation.

Your financial planner will make financial advice recommendations including strategies to achieve your financial goals and objectives. This will include products and services to benefit your financial state, with an explanation of why those were specifically chosen. There are many areas that the financial plan may cover, such as investments, insurance, debt, budgeting, estate planning and taxes. With each financial product you will receive a product disclosure statement to help you make an informed decision and determine the risks involved.

You should also receive a clear explanation of the fees and charges paid by you, including the financial planner fees, product fees, the cost of switching products and all future costs. Take the time to carefully look over your financial plan to make sure you understand the recommendations and make any alterations before agreeing to the plan.

Summary of financial position and goals

A financial plan should be a true representation of your financial health: salary, household expenses, savings accounts, home equity, insurances, debt repayment and assets. From your previous meetings with your financial planner a financial strategy should be clearly evident in the financial plan. Make sure you clarify with your financial planner if the strategy isn’t clear. Feel free to ask your planner: Why was this particular product recommended?

The financial plan will also outline your goals (short term, medium term and long term) and the time it will take to achieve them. Your goals should reflect where you want to be in 5, 10 or even 20 years. This is especially important for those looking to retire. The plan should state the nest egg needed for comfortable retirement and the time frame it will take to secure, so you don’t run out of money.

Investments and risks involved

The level of investment risk will be stated in the financial plan and should reflect the risks you are comfortable with taking. Ask your financial planner: What rate of return do I need to reach my goals?

Borrowing to invest is popular for those looking to build their wealth in a shorter time frame. However, the risks involved should be explained clearly in the financial plan, such as possible loss of capital, the instability of interest rates, repayments of the loan or unexpected life changes, such as redundancy.

The financial plan should be reviewed regularly (at least once a year) and adjusted according to life changes. If you receive a pay rise at work you may consider contributing the surplus to any savings plan or if you loose your job you will need to consider the impact to your financial position including your financial plan. There could also be situations outside your control, such as a drop in the market value of your investment. You might consider continuing with the product for a longer period of time until the investment improves or discuss changing products with your planner.

A financial plan is a guide to your financial future and a step towards financial success or that golden egg you’ve been aiming to reach.

For more information on financial planning you can go back and read posts about why you should use a financial planner? and how to decide your financial goals of our Three Part Series on Financial Advice.