Financial Planning & Advice

What Is a Financial Plan & The Benefits of Financial Advice?

If you do not have a sound financial plan, you can’t be sure whether your finances can cover your current and future priorities and financial goals. It’s only through financial planning that you can determine your financial goals and create a balanced plan to achieve those goals.

This article outlines what you need to know about financial planning, including creating one and managing your resources to achieve financial security, and outlines the benefits of working with financial planners and advisers. 

Read on as we discuss the step-by-step process in building a financial plan, finding a competent financial planner, and reviewing your financial plan. 

Financial Plans 

A financial plan refers to a document that specifies your current financial situation, your long-term monetary goals, and the strategies to accomplish those goals.

You may create this document on your own or with the help of a professional financial planner. 

Preparing a financial plan begins with a comprehensive evaluation of your financial state and future expectations. It also involves calculating your net worth, determining your cash flow, and considering priorities like business goals and education for your children.

Financial planning is a long-term strategy to wisely manage your finances so that you can achieve your financial goals. To create an effective financial plan, you must establish your goals first.

The data on your personal finance and future expectations is gathered for analysis and evaluation. Once this stage is completed, a financial plan can then be developed. 

During the plan’s implementation, monitoring should be done to make necessary adjustments to achieve the desired goals.

Types of Financial Plans

Financial plans vary depending on your purpose and financial goals. It helps to know the plan type in order to determine which strategies you can apply to meet your objectives. 

Two common types of financial plans are:
 

• Personal Financial Plan

A personal financial plan includes assessing your finances, such as income, assets, liabilities, and investments. Personal financial planning can be directed towards achieving specific personal financial goals. 

You may create a financial plan for yourself for whatever personal reason, such as getting married. Whatever the reason, you have to properly assess your financial situation and formulate effective financial or investment strategies to meet your long-term and short-term goals.
 

• Business Financial Plan 

A business financial plan includes the components mentioned in a personal financial plan. 

However, a business financial plan focuses on forecasting financial results and determining how to use the company’s financial resources to achieve short-term and long-term objectives.

Steps to set up a business financial plan include calculating setup costs, forecasting profit and loss, and working out your cash flow projections.

Part of the financial planning process is applying for an Australian business number (ABN) for tax and other business activities.

Identifying Your Financial Goals

Financial planning will work to your advantage if you know what goals to accomplish. At every stage of life, there are specific financial priorities. 

Your financial goals will vary depending on your age, income, and personal plans. 

Every life stage brings several priorities that require different investing approaches.

Young to Mid-Life Stage

Most people are establishing and building their careers at this stage. Some are probably starting their own families. Generally, people at this stage prioritise the following: 
 

• Travelling
• Buying a first home
• Getting married
• Having children
• Family health care
• Business planning

Mid-Life Stage

This is the stage where you may be trying to establish a comfortable lifestyle and planning for your future. Your priorities may include: 
 

• Income or lifestyle protection
• Healthcare
• Investments
• Retirement planning
• Inheritance
• Tax management
• Debt management

Pre-Retirement Stage
 
You may have been promoted or established a good business and ready to retire after some years of hard work. Your concerns at this stage may include: 
 

• Family health care
• Debt elimination
• Helping your children
• Retirement planning
• Wills and trusts
• Business exit strategy

Retirement Stage

After 20 or more years of staying in a job or managing your business, you will be retiring. At this stage, your priorities for a retirement plan may include the following: 
 

• Aged care planning
• Retirement savings
• Health care
• Protection of assets
• Travelling
• Estate planning
• Mitigation of tax obligations for beneficiaries of your estate

Identifying your financial goals regardless of what stage of life you are in should be based on your personal needs and expectations. 

How Do You Build a Financial Plan?
 
Creating an appropriate financial plan for your circumstances and goals can be challenging, but at the same time rewarding when you are able to achieve financial security. 

Here is a step-by-step guide to help you get started with creating a financial plan that works. 

Set Specific Financial Goals

Setting goals is the first step in successful financial planning. At this stage, you need to assess your current financial situation and identify short-term, mid-term (medium-term), and long-term goals to achieve financial security. 

When evaluating financial goals you want to focus on, it is essential to be realistic about your expectations. 

Create a Budgeting System

Formulating and executing strategies to achieve your financial goals requires some funds. Therefore, budgeting is an integral part of making financial decisions.

You can create a budgeting system using traditional methods, like going through your bank statements and bills and categorising expenditures on a balance sheet. Or you may try using free budgeting programs, some of which are available online, to make the budgeting process more efficient. 

Incorporate Taxes

Incorporating tax planning into your financial plan increases the probability of achieving your goals.

With a financial advisor on your side, you can analyse your current and future tax deductions or liabilities and develop tax strategies to minimise the taxes you pay. 

Tax planning is a vital component of a sound financial plan and will help you manage your current and future cash flow.

Prepare an Emergency Fund

You can’t predict when emergencies will strike. There are, however, ways to prepare for them and make sure that you have extra funds to cover sudden expenses. 

Failing to build an emergency fund may lead to a financial crisis. To keep you on track to pursuing your financial goals, no matter the situation, make sure you set aside some emergency funds. 

It is ideal to have a savings account that can cover three to six months’ worth of expenses for your financial obligations and basic needs.

Manage Your Debts

Managing debt is another crucial task in financial planning. After all, debts can affect cash flows and your overall financial status. 

With a financial advisor’s help, you can analyse debts including mortgages, student loans, home loans, and credit card debt. Stay on top of your obligations by formulating a debt repayments strategy that works for you.  

Get the Right Insurance

Having insurance with low interest rates protects you and your loved ones during emergencies or any sudden and drastic life events. 

For example, an insurance policy can provide funds to your beneficiary when you pass away prematurely. 

Term life insurance is a popular choice for those who want to cover the financial obligations of raising a family. This type of insurance acts like a safety net that provides funds for sending kids through college and paying a mortgage, for example, if you’re no longer around to earn a paycheck.

A term life usually requires medical underwriting, or evaluating an application for health insurance coverage by examining the applicant’s medical history. The amount of coverage in this insurance is determined by the applicant’s risk factors.

Plan for Your Retirement

Retirement planning begins with knowing your retirement goals and how much time you will need to achieve them. Check the kinds of retirement accounts that can help you raise money to fund your future. 

Your current age and expected retirement age serve as the roadmap or initial groundwork of an effective retirement strategy, which you can include in your financial plan.  

Boost Your Super

Look at essential aspects of your super and see how you can add more money to your fund. If you can afford it, making those extra contributions is a great way to boost your savings and reduce your tax.

Ways to add contributions include the following:
 

• Spouse contributions – If your spouse earns less than $40,000 per year, you can contribute to your spouse’s super fund and claim an 18% tax offset (up to $3,000) on your contributions through your tax return.
• Salary sacrifice – You can have your employer pay some of your before-tax income into your super, on top of the super guarantee.
• Consolidation of multiple super accounts into one – This makes your investment strategy easier to manage.
• Review of your investment options and asset classes – You can choose one that’s more suited to your attitude to risk and time available.

Develop an Estate Plan

Estate planning is knowing how your assets will be managed, preserved, and distributed after death. Planning also includes managing properties, investment portfolios, and financial obligations if you get incapacitated. 

Creating an estate plan is essential for protecting family wealth, providing for a spouse and children, funding education, or leaving a legacy to a charitable cause.

Review Your Financial Plan Frequently

Once you’ve gone through the other steps, you can review your financial plan for accuracy and completeness. Have you included everything in the plan, and are the strategies appropriate to meet your financial goals? 

An excellent review of your financial plan and financial position can give you the confidence to execute your plans accordingly. 

Special Considerations of a Financial Plan 

Financial plans have no specific templates. However, a financial planner can create one that is appropriate for your circumstances and goals to help you transition smoothly through the financial phases in your life. 

Special considerations that have to be addressed or changed in your financial plan include: 
 

• Long-term Investment Plan 

This customised plan is based on specific investment goals and a personal risk tolerance profile. 
 

• Comprehensive Risk Management Plan 

This includes assessing your personal life insurance and disability insurance, property and casualty coverage, liability coverage, and catastrophic coverage. 
 

• Estate Plan 

It involves the appropriate arrangements for the benefit and protection of identified heirs in case of death or incapacity. 
 

• Retirement Strategy 

Regardless of how many priorities are considered, a retirement strategy should be part of your financial plan. The plan should consider accumulating the retirement income to support your basic needs. 
 

• Tax Reduction Strategy 

How much you earn isn’t nearly as important as how much you retain, which is why reducing your tax should be part of your wealth management. Aim to minimise and even negate taxes on personal income as much as the tax code allows. 

Working With a Financial Planner

Australian financial planners help individuals and corporations manage their finances and achieve long-term financial goals. They can extend assistance and share their expertise in investment planning, insurance, education, retirement planning, and other financial endeavours. 

A financial adviser or planner will help their clients analyse goals, risk tolerance, and life or corporate stages. 

Financial advisers help determine a suitable class of strategies or investments to meet the clients’ objectives. They can explore investment options and strategies to help you to help build your wealth, including shares, property, cash and fixed interest investments, term deposits and superannuation.

Financial advisers will also look at diversifying your investments in a way that is comfortable for you to help you achieve your goals, helping you choose the balance of risk and return that’s right for you.

A financial adviser can help you with a range of strategies to:
 

• pay off your home loan quicker
• save money and grow your assets
• increase your super balance with tax-effective strategies
• protect your income
• build an investment portfolio
• fund your children’s education
• help you secure a better future for you and your family

When Is Financial Advice Necessary?

Certain areas of financial planning require specialised knowledge and experience from a certified financial planner. 

When your financial plan involves a large sum of money or assets, a financial planner can help you achieve financial success by giving investment advice and minimising the risks of possible losses or failure. 

Common scenarios that may require working with a financial planner include:
 

• You are nearing retirement
• You inherited wealth from your parents and plan to invest the money
• You just got married and want someone to help manage your finances
• You got divorced or widowed and need some help with financial matters
• Your parents are getting older and you need help managing overall finances
• You hate financial planning and want professional help to ensure that you will not go broke in the future
• You can prepare a financial plan yourself but want a second opinion to ensure you don’t miss any essential points

Obtaining professional advice is a great investment for to plan your finances both now and in the future. 


General Advice Warning
The above information may be regarded as general advice. It may not suit your personal objectives and your individual financial situation has not been taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice provided as part of this information, having regard to your own objectives, financial situation and needs.