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What is a Financial Plan?

Jars of moneyA financial wish list with action steps to accomplish at points in the future including; short, mid-term, and long-term goals, is a good definition.

Any strategy should be designed around personal needs. If you're just getting started, you might need a comprehensive plan that covers all the aspects of finance, cash management, debt planning, insurances, investment, retirement or specific event-planning and of course estate planning. If somewhat nearer retirement, maybe just a review of income, investment and estate planning options is needed.

For an obligation free, introductory meeting to discuss your financial planning requirements please call one of our advisers on 07 578 3863.

When developing a financial strategy first decide; What do you want to achieve. What is the most important goal for you? Ask things like, should I eliminate debt before starting an emergency or savings fund? What risks am I willing to take to achieve my goals?

The basic goals in many financial strategies - a starting point.

  • Follow the budget. The most effective tool financially speaking. Know your expenses and income each month. Track your spending habits; create excess cash flow that can be added to investment or savings. Pay yourself first.
  • What is net wealth? Calculate your net worth (assets minus liabilities) to see where you stand. Discover how much you really have, what you owe, how much you can invest, and how well your current investments are really doing.
    Cash, savings, shares, bonds, investment funds, life insurance policy (cash value only), home, car, boat, art and rental properties.
    Mortgage, unpaid loans, credit cards, car loans, hire purchase, or unsecured loans.
  • Eliminate ‘bad’ debt. Common sense and self-control are usually the best mix to control debt. It may be as simple as cutting excess spending - impulse buying. Living beyond your means however, may require more extreme measures and some real help. Help is available to reduce financial distress and manage money better.
  • Minimise the risk. Any financial strategy should be based on the risks you're willing to take to meet your goals. What is your investment style? Conservative or aggressive or somewhere in between? You have to feel comfortable with decisions for any plan to work long term.
  • Keep what’s yours - minimise taxes. This means taking full advantage of tax effective investments (KiwiSaver for example). We now have PIE and FDR to assist with better taxation outcomes. Employ a buy and hold strategy or low dividend, growth type individual equities or tax-efficient investment funds. Plan any debt to be effective as possible – tax deductible if you can.
  • Emergencies are emergencies. Plan for the unexpected - medical bills, redundancy, car repairs. Emergency funds should include at least 90 days income, easy access. Build up the account by a monthly automatic deduction. Short term use of credit-card can also help - as a last resort, of course.
  • Rigidly flexible. Review annually but preferably six monthly - a dusty plan in the bottom drawer does not work. Be flexible enough to include new goals or delete old ones. Update action steps as well. Some reasons to adjust your plan include getting married (or divorced), having children, economy downturn or a change of job etc.
  • Beat inflation. To maintain a standard of living from investment alone, the rate of return on your investments will have to beat inflation. Get to understand the power of your money is going to be worth less in the future.

 Tips & Warnings

  • ‘Write it down’. The very best advice! Have a living document that grows over time with you - no strategy to follow - no reference point from which to review progress.
  • Be realistic with asset values and investment abilities.
  • Unless you have the time and will, seek qualified professional advice on matters involving taxes, business and estate planning.
  • When opportunities and challenges arise, use your financial strategy against which to make decisions.
  • Free seminars, workshops and courses may be helpful, but don't waste your time on schemes that promise shortcuts to wealth.
  • Beware of expensive, long term financial coaching courses. Critically evaluate pre-packaged financial strategies that only require filling in your name and dollar amounts – you are not that dumb.
  • Beware of the ‘free plan’ offer – not much good in life is free these days.
  • Try not to rely on family members or close relatives for professional advice, especially if they have a vested interest in your financial future.
  • Flexibility is important, but without specific goals, objectives and action steps, you have no strategy.

Too busy or just a second opinion?

A professional financial adviser can be a good investment - personalised full service or simply a few questions about investment, estate planning or insurance costs - they should be able to assist. There are two basic types - those who charge a fee for advice and those who earn a brokerage or commission from any financial products that you purchase (or a mix of both).

1) Fee-Only Adviser. Fee-only advisers provide advice for a set fee. They are not reimbursed by companies whose products they recommend. An advantage is that you receive unbiased financial advice. Be prepared to pay between $1,500 and $3,000 for a comprehensive statement of advice – it will be worth it.

2) Commission Planner. Provides free basic financial advice, but also sells products as part of that advice. Commission-only planners usually work for insurance companies or brokerage houses or banks. They are not that much different from a regular salesperson – you get what you pay for!

Many financial advisers are accredited by a professional association such as Certified Financial Planner™ (CFP™). CFP practitioners abide by a strict code of ethics and have to complete a continuing education requirement each year. Note: CERTIFIED FINANCIAL PLANNER™ and CFP™ are certification marks owned by the Certified Financial Planner Board of Standards.

To be a successful investor, you need to know where you want to go and you need a road map that shows how to get there. A carefully designed comprehensive statement of advice gives better control over assets and makes for successful money management.

Financial planning takes determined effort, time and patience but in our experience it's time and money well spent.

For an obligation free, introductory meeting to discuss your financial planning requirements please call one of our advisers on 07 578 3863.

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