The importance of financial planning for individuals.

My dad used to tell me that two things in life are certain. Death, and taxes. The latter is something we (to some degree), can influence by adopting to live in more tax-favourable jurisdictions. The former certainty, is unavoidable, and it is this inherent fact of life where financial planning often comes to the fore.

Can you imagine what your family has to go through in order to pay the bills, if you do not leave enough for them? Planning for the future is not something we should to; it is something we all must do.

WHAT IS FINANCIAL PLANNING?

Financial Planning is a solution which converts your goals into action plans and provides the direction and discipline to achieve these goals.

WHY IS FINANCIAL PLANNING NECESSARY?

If you have life goals, such as a worry-free retirement, education for your children at the best schools and colleges, buying a house or a car — then building a financial plan can help you achieve these goals.

Your financial plan will work towards achieving goals such as planning for your retirement, child’s education, marriage, buying a house, debt management and insurance.

Financial planning could help you:

• Categorise your risk appetite;

• Put a number to your goals (what is achievable and what looks difficult); map your current and future cash flows to your financial goals;

• Map your existing assets to your financial goals;

• Make a statement of your net worth;

• Look at the adequacy of your insurance;

• Determine whether you have any shortfalls or inadequacies;

• Help you build a capital for your retirement; and

• Make recommendations for your existing investments.

While some banks do offer a financial planning service, many find their approach to be less thorough and their impartiality must be questioned. Many people prefer going to an independent financial planner instead as they have a fiduciary relationship to their clients and not to any one institution or investment house; hereby often implementing a plan which is in their clients best interests and not in the best interests of shareholders of the institutions.

The importance of financial planning cannot be overstated. In addition to the financial implications of death, two factors matter a lot — inflation and changing lifestyles.

Inflation is a situation in which too much money chases a limited number of goods. This leads to a fall in the value of money. It is also expressed as a rise in price levels. For example, a product that costs €100 now would cost €105 a year later, assuming prices rise at 5 percent. This is the impact of rising prices over one year. Over 30 years, assuming that inflation continues to rise at 5 percent, the same product would cost you €432!

Financial planning can ensure you are better equipped to deal with the impact of inflation, especially in retirement when expenses continue but income streams dry up.

The second factor is changing lifestyles. With higher disposable incomes, it is common for individuals to upgrade their standard of living. For example, cars were considered luxuries not too long ago but are a necessity today. Financial planning has a role to play in helping individuals both upgrade and maintain their lifestyle.

Moreover, there are contingencies like medical emergencies or unplanned expenditures. Sound financial planning can enable you to mitigate such circumstances, without straining your finances.

I strongly recommend all individuals to seek financial advice to assist them in achieving their goals. For a free consultation, please comment to this article and I will get in touch with you. Should you be outside of Europe and seek financial advice, I have some great professionals within my network who I can put you in touch with.