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The life-changing benefits of having a personal financial plan

Date: 01/04/2022

Getting clarity around your goals as part of a long-term financial plan can provide peace of mind and a prosperous future.

Long-term wealth and financial security rarely happens by chance.

Smart investors know they need to have achievable life and financial goals – as well as the discipline and structures to turn those aims into reality. That is where a personal financial plan comes into play.

The truth is that some people’s financial affairs are a mess. For example, they may not know their true income, the status of their bank accounts, how many shares they own, or if they have appropriate insurance.

Others may have a high income and an impressive investment portfolio, but be missing out on significant tax benefits through poorly thought-out ownership structures.

A proper audit in the form of a financial plan can turn things around.

Why you need a financial plan

Getting clarity around your finances – and understanding the implications of your spending habits – is one of the most important things you can do for your overall financial success.

A financial plan provides a guide for your actions and decision-making. While it is never too late to act, the earlier you start making better financial decisions the more you will benefit from the compounding effect of wealth generation.

Whether it is budgeting for travel or a new car, paying for your children’s education, or ensuring you have enough money for retirement, all of these factors can be successfully managed through a financial plan.

In addition, it can also stop you from making emotional decisions such as overspending on a house or renovations, or starting a business without the appropriate forethought or business structures.

As such, your financial plan can provide peace of mind in addition to any financial benefits.

What a financial plan looks like

The starting point for any financial plan is setting life goals and financial targets. That will mean different things for different people.

Just as people seeking to get fit will shape their training around whether they want to run a marathon, compete in a triathlon, or just achieve better general health, the actions required to get financially fit will depend on your desired outcomes. Do you want to achieve high-net-worth status in the form of property and share investments, or are you content to have merely a comfortable retirement?

Without such goal-setting, you can fall into the trap of just making a wish list that is unlikely to be achieved.

There are many elements to a financial plan, but the key factors are insurance, estate planning, debt structures and investments.

Flowing on from there, the plan will inform the creation of a sound budget that addresses cash flow, savings and investments. Taxes and any income tax credits and deductions will also be covered, along with Estate Planning. The plan could and should include an emergency fund in the event of unexpected life, personal or family crises that can take a toll on your finances.

Why the right structuring is key

Proper structuring of your finances that takes into account your risk profile should not be overlooked either.

Determining what investments you buy and how much to allocate to certain assets is one part of the equation. How you buy assets is also critical. Should property and shares, for example be bought in your name only, in joint names, or under your spouse or partner’s name? Should you invest through superannuation, a company, or a family trust?

The answers to these questions, and others, can have a big impact on tax efficiency and asset protection. Avoiding unnecessary complexity with such structures is also advantageous as simpler investment portfolios are usually less expensive to administer.

Rather than being daunted by the notion of creating a financial plan, consider it as a tool that can result in a more financially stable and happier future for you and your partner or family.

Think, too, about engaging a trusted financial adviser to help you establish and manage such a financial plan. In choosing an adviser, make sure that you have a rapport with them and understand their investment approach. Do they advocate a higher-risk, higher-return strategy, or are they overly conservative? Choose someone who is the right fit for you.

The investor-adviser relationship is a partnership and you have to be comfortable that they will be with you on the journey to a stronger financial future.

To find out more about creating a long-term financial plan, speak to one of our Adrians Private Wealth partners.