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What should a complete financial plan look like?

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Most of us are aware that there are areas of our finances which need sorting out. We think about the credit card debt which needs settling, or the pension we haven’t started yet.

Ideally, it would be excellent if all aspects of our wealth and financial lives could be managed in a way which allows them to work together – leading to more cash in the short term, and movement towards greater wealth and financial security over the longer term.

This is where we at Castlegate like to talk about “lifestyle” financial planning. Here, a financial planner helps you synergise all of the important areas of your financial life so that all work towards your financial goals.

Rather than sorting out each part of your finances in a piecemeal fashion (e.g. your mortgage, then later your pension etc.), everything is woven together in an effective plan which minimises your financial risk; manages cash flow; safeguards your assets (e.g. property); reduces unnecessary taxes and pass on an inheritance more tax efficiently.

So, what does a comprehensive financial plan like this actually look like? In this article, we’ll be providing an outline of some of the key components which typically feature. We hope you find this helpful as you gather your thinking about your own financial plan.

Please note that this content is for information purposes only and should not be taken as financial advice which should be sought before any action is taken. To receive personalised financial advice into your own financial situation and goals, please consult an independent financial adviser.

#1 Net worth overview

When it comes to any kind of strategic planning, it’s usually a good idea to establish “where you are” prior to figuring out “where you want to go”.

This is why a full financial plan will typically start with an audit of your finances (or net worth overview) to establish what you have. This not only includes surveying your assets such as pensions, property and possessions but also your liabilities too, such as personal debts.

It’s important to work through this at the very beginning, in order to identify strengths within your finances and wealth which can be built up – as well as weaknesses which need to be addressed. For instance, perhaps you have come to possess a very significant defined contribution pension via your employer, which could be a vital piece within your retirement plan. However, perhaps, on the other hand, you have a large liability which is putting a large, monthly strain on your finances and which is potentially putting your finances a risk. If so, this will need addressing.

#2 Objectives

Going through a net worth overview or audit is crucial to helping you flesh out the next part of your financial plan – i.e. setting your personal objectives.

What are your financial goals over the next three years? What are your long-term goals for the future, looking into your later life and ultimately retirement?

It’s important to be specific with your objectives. Vague goals such as “have enough money for retirement” are not going to provide your financial plan with the necessary focus it needs. You also need to think about the “measurability” of your objectives. In other words, are they expressed in a way which allows you to easily track your progress towards them over time?

For instance, perhaps one of your long-term goals might be: “To ensure that my spouse is able to keep receiving £26,000 per year in the event of my untimely death.” An example short term goal might be: “To build up an emergency fund of £5,000 over the next 12 months.”

#3 Strategic options

At this stage, you have largely established where you are and where you want to go with your comprehensive financial plan. Now, you need to consider how you will get there.

This is where you need to think about your financial strategy – i.e. the overall course you will pursue in order to achieve your objectives.

There are typically many options open to you here. When you think about it, the same is true when it comes to planning a physical journey. There are multiple routes or means of transport which you might use to get to your destination. Typically, however, there is an “optimal” or “ideal” course which starts to reveal itself to you as you whittle through the different options based on your various criteria, such as cost and journey duration.

The same applies to your financial plan. For instance, let’s suppose that one of your financial goals is: “To be mortgage free by the time I am age 60”. How will you achieve that?

One option could be to eventually sell your home once your children have left home and move into a cheaper property. Another idea would be to consider overpaying on your mortgage. Regardless of the option you choose, how risky is each option and how might each one affect the rest of your financial plan? For example, how certain are you that you would be able to downsize in the future? How realistic is overpaying on your mortgage, especially if you are perhaps considering increasing your pension contributions?

Other important elements

There are many other vital aspects of a complete financial plan which we have not been able to mention in this article. One important aspect is your “asset allocation”, which refers to how you invest your money within a personalised investment portfolio. Here, your decisions will be impacted by a variety of factors including current market performance, your own risk tolerance and your individual financial goals.

For the more financially-astute, there is much you can do on your own to get started with your own holistic financial plan. However, given the complex and ever-changing tax landscape most people face when trying to organise their wealth, it’s usually best to consult an independent financial adviser to ensure that you are seeing the complete picture and making decisions based on the best information available.