As the cost of living continues to increase, research has revealed that 64% of Australians, close to 2/3 of the country, are worried about their financial future.
More alarmingly still, only 16% of Australians have a financial plan that would help alleviate their concerns and make them more confident and secure about meeting their current financial needs and long-term financial goals.
The question is, what is financial planning – and how does it work? In this post, we explain the financial planning process, why it’s important to create a personal plan, and why it’s wise to work with a financial advisor.
What is financial planning?
Financial planning is the process of developing strategies to ensure your and, when applicable, your family’s financial needs are met in both the short and long term.
A comprehensive financial plan should not only help you achieve your most important goals, e.g., buying a house, funding your children’s education, or retiring by a certain age, but also accounting for any unforeseen circumstances and their associated costs.
How does financial planning work?
Generally, the financial planning process involves the following:
- Evaluate your current financial situation: calculating your total income and expenses.
- Set Financial goals: determining what’s most important to you and your family and establishing financial goals that will allow you to accomplish them.
- Consider worst-case scenarios: accounting for unforeseen circumstances that could derail your financial planning strategies and how to mitigate them.
- Create a personal financial plan: developing a financial planning strategy based on your current circumstances and short and long-term financial goals.
- Implement your financial planning strategy: putting your financial plan into action.
- Monitor and adjust: tracking how well you’re sticking to your financial planning strategy and making the necessary adjustments to strengthen it.
Many people work with financial advisors to create their plans because they simplify the process, highlighting the strengths and weaknesses of their proposed strategies. Better still, a financial planner has the expertise and experience to offer recommendations that most people wouldn’t realise were feasible.
Why is financial planning important?
Creating a financial plan is important because it allows you to take large – and seemingly overwhelming – financial goals and break them into manageable, realistic steps. This makes it easier to reach your long-term objectives and makes you more aware of how well you budget and how you can improve your financial management skills.
Different types of financial planning
Here are different types of financial planning strategies you may employ, based on your needs and financial situation:
- Investment planning: helping to create wealth by taking surplus cash flow and advising on how to build the optimal investment portfolio to attain your long-term financial goals
- Retirement planning: ensuring you can save enough money or accumulate assets that provide sufficient monthly cash flow to retire at your desired age
- Insurance planning: financial advisors can help you evaluate your insurance coverage, so your financial needs are met if you become critically ill, suffer a severe injury, have legal action taken against you, or are unable to work, etc.
- Tax planning: minimising your tax obligations and meeting them on time is a crucial aspect of achieving your financial goals.
When do you need a financial advisor?
In reality, any individual with a regular income and long-term financial goals could benefit from consulting a certified financial planner. This is because financial advisors can identify strategies that will help accomplish your goals while avoiding potential pitfalls.
However, there are also particular circumstances or life events when it’s especially wise to speak to a financial advisor, including:
- Planning to retire in the next 5 years: financial advisors can help you understand your financial options to determine the best time for you to transition to retirement.
- Getting married: a financial planner can help you budget for the wedding – as well as how to navigate your new, joint financial situation.
- Getting divorced: Conversely, a financial advisor can be an invaluable, impartial source of advice if you’re getting divorced.
- Starting a family: similarly, if you’re concerned about financing your children’s education and future financial needs as they grow up.
- Coming into a financial windfall: this could include an inheritance, work bonuses, dividends or profits from successful investments, etc. A financial advisor will help maximise your return on investment (ROI).
- Maximising wealth creation: you may have made some successful investments but want to harness the knowledge of a financial advisor to increase your wealth-building opportunities.
- You struggle with financial management: you recognise budgeting and sticking to a financial plan doesn’t come easy for you and want a professional to help you with your short and long-term financial goals.
K Partners – Highly-rated Financial Advisors in Melbourne
The skilled and experienced team at K Partners offer a comprehensive range of financial planning services. We tailor each financial planning strategy to your individual goals and circumstances, accounting for your present needs and financial future.
Contact us to book your free initial financial planning consultation
Please note that all the while the information provided above is factual in nature, it’s also intended to apply generally, and to a broad audience. Subsequently, the information hasn’t taken your personal circumstances or goals into consideration.