How to create a financial plan

Written by Close Brothers Asset Management

Financial planning is an ongoing process where you actively think about what’s important to you and your family financially, and then make decisions based on this.

It's usually a good idea to engage with a financial adviser to help you develop your plan, as they can provide guidance based on your specific circumstances, ambitions and requirements.

Set your financial goals

Knowing what your goals are and what you’re working towards is a key step of any sufficient financial plan. By putting specific short, medium and long terms goals onto paper, as well as timelines to match, will help you solidify what these goals are. In fact, you are 42 per cent more likely to achieve your goals if you write them down[1].

Start by listing your goals and prioritising them realistically. You can then work out how you’ll be able to meet the goals, how much it will cost and exactly how long it will take. Once you have a defined plan, it will be easier to understand the outcomes your financial decisions can have.

Review your financial position

Understanding what your current assets and liabilities are will provide further clarity on where you are at this moment in time.

Part of reviewing your financial position involves looking at your income distribution, which is comprised of all your incomings and outgoings. By doing so, you will know whether you should consider making any adjustments based on what your pre-defined goals are.

A cash flow forecast creates a baseline projection of how much you can comfortably save and invest towards your medium and long term goals. Flexibility is an important factor, as it’s not possible to know exactly what the future holds, so when reviewing your financial position, you’ll want to check you have a “safety cushion” within your savings.

Develop a personalised financial plan

A comprehensive financial plan should be a holistic strategy that sets out the specifics related to the various facets of wealth management and should be unique to your situation and financial objectives.

A financial plan should work as a set of rules or a guide for how you operate financially. It is not necessarily rigid and there may be times you cannot stick to it for perfectly acceptable reasons, but it does help you keep your intentions at the forefront when making financial decisions.

It's important to ensure you focus on all the vital factors when building a plan, rather than just the parts that seem most interesting to you. There are specific stages in life that should be planned for, including buying a home, saving and investing for children and retirement planning.

A qualified financial adviser can work alongside you to manage the preparation for these life events, for example, by recommending investments that are appropriate for a certain life stage or goal.

Here is a list of questions to ask yourself or your financial adviser when you’re developing the plan:

• What are my current financial obligations?
• Do I have any expensive debt that could be repaid quicker?
• Are my investments performing as well as I expect them to? If not, how could they be working harder for me?
• If something unexpected were to happen to me, would my family still be able to maintain their current lifestyle?
• What tax allowances are available to me and am I utilising all of them?
• Have I written a will? If so, is it in date?
• Should I Gift relatives to help mitigate Inheritance Tax (IHT)?

Some of these issues may not be as exciting as other elements, but asking these important questions will show you where the gaps are.

Risk protection insurance which can provide cover for emergencies is often neglected by people, with fewer than one in ten (eight per cent) employees surveyed in the Close Brother Financial Wellbeing Index having purchased income protection products.

A well-developed financial plan is one that can be thought of as a roadmap that guides you on the journey you’re embarking on, and gives you the peace of mind you desire.

Implement your financial plan

Now that you have a defined plan, implementing it can be more difficult than it might seem at first glance. It may not come naturally to you to stick to a plan and some things may happen that you haven’t planned for.

Getting the support you need from a dedicated financial adviser can benefit you in many situations; if you’re considering whether to invest in stocks and shares, or if you want to know how to effectively manage your taxes.

You can make sure you're prepared for the important financial decisions you will inevitably face, with a dedicated resource who has the experience and qualifications to help you make the right decisions.

Consider estate planning

A financial plan isn’t complete without a comprehensive estate plan. Whilst for many it may seem a long way off, preparing for who and how you would like to leave your assets is an integral part of financial planning. There can be considerable tax implications of inheritance, therefore, you should seek advice from a qualified financial adviser to help mitigate Inheritance Tax (IHT) if applicable.

The most important document you'll need to create is your will. A will states how you would like to structure your assets when you pass them down. It is highly personal to you and may include charitable donations or it may specify at what age children should inherit money.

Don’t just consider your finances. If you have specific wishes regarding how you should be cared for if you become incapacitated, include these in your documents. This is often referred to as a living will or advance directive.

By planning for the later stages of life and wealth transfer as early on as possible, you will have a better chance of taking control of your wishes for your estate.

Monitor and evolve your financial plan

Monitoring your plan regularly allows you to evaluate how well you’re doing at meeting your financial aspirations and can help you spot any gaps.

As a minimum, you should formally review your plan once a year to reflect on what you’ve achieved and whether the plan needs iterating. Your financial planning objectives can evolve as life inevitably changes so use this time as an opportunity to review the bigger questions you may have about where your life is heading. Once you’re used to regularly reviewing your financial situation, you’ll find yourself feeling less stressed and more secure about your financial future.

Capital at risk. Tax benefits depend on your individual circumstances and tax rules are subject to change.

[1] https://www.inc.com/peter-economy/this-is-way-you-need-to-write-down-your-goals-for-faster-success.html

Speak to us

We cut through the complexity of the world of money and investing to give you the clarity and clear direction you need. To find out more or if you have any questions about financial planning, please contact our Managing Director Ben Staniforth.

Email Ben.Staniforth@closebrothersam.com or call +44 (0) 7519 668 120