subject: Planning Your Financial Future - Diagnosis Before Prescription Is Best! [print this page] Look out for Financial Planning Week, coming w/c 21st November. This campaign is promoted by The Institute of Financial Planning(IFP) with the aim to raise awareness of how important Financial Planning is to people's lives.
The IFP say:
"Putting some simple financial plans in place and making some smart decisions to help achieve your goals and dreams in life is the first step towards really taking control of your life and gaining valuable peace of mind."
We couldn't agree more!
Further, chief executive Nick Cann adds:
"We take a specific stance on use of cashflow modelling because we don't think financial planning can be done without using that specific tool."
As members of the IFP we thoroughly applaud this stance, as experience has taught us that we simply could not do the comprehensive job we do for clients that they value without using this tool.
So why is this?
Well, as those of you who use a Financial Planner will no doubt be aware, we start with getting to understand your goals in life. Once we have a clear idea of these, and when you want to achieve them, we need to be able to MEASURE what these goals will actually cost you.
As an extract from the IFP website says:
By matching your finances to your goals you will:
- Have a much clearer view of where you are going in life
- Reduce the stress involved
- Be in control, on track and have peace of mind
So a random list of measured goals could be (from age 60):
- Walking holidays three times a year - 4,500
- Cruises twice a year - 10,000
- Helping children with property deposit - 50,000 per child
- Flying to Australia to see family twice a year - 12,000
- Daughter's wedding 15,000
- General expenditure 3,000 per month
So, having established your goals and measured their cost, you can now look at the assets you have to pay for your lifestyle in retirement.
Typically, these could be:
- NHS Pension 45,000 pa
- NHS Lump Sum 285,000
- Other savings 115,000
- State Pensions x 2 10,000 pa
- Expected downsizing capital 250,000
So what you now need to do is to match the costs and assets together to get the big picture. You also need to take into account inflation, and the expected varying returns you will get on your different investments.
The main question here of course is:
"AM I GOING TO OUTLIVE MY MONEY?!"
You can also add in scenarios such as:
- What if I die before my spouse? How will they be affected financially?"
- What if we want to gift more to the children?
- What if stock markets fall and keep falling?
- What effect does inflation have on my cash deposits?
Easier said than done if the only measurement system you have is your fingers and toes!
That is why we use a robust sophisticated cash flow forecast system that can perform all the necessary calculations including any "What Ifs".
The resulting picture then gives the context in which informed decisions can be made, and your finances maximised.
Over to Nick Cann at the IFP again:
"Too many people are merely sold to. We see it all the time with big banks. What happens is these people end up with a mishmash of financial products they don't really understand.
By contrast, what a financial planner does, and many advisers do, is start by addressing an investor's goals and objectives. Products are only brought into the picture as a means of achieving these objectives.
This means financial planners charge fees rather than take commission from the company whose products they get clients to buy."
Spot on Nick, and clients tell us that because the process is so thorough, the resulting peace of mind is extremely important to them knowing that they won't run out of money before they die.
As Planners, such feedback is wonderful, and certainly gives us an extra spring to our step!
Thinking of several cases this year, the clients' cash flow forecasts has enabled us to recommend:
- Considering working part time from age 55
- Gifting to children more
- Stop investing so much and spend more instead
- Reducing the risk on investments
- Retire at age 60 instead of working on
- Cancel contributions into private pensions and policies not required
To us this is what it is all about. Not products, but people living the life they really want by developing their own strategy to get them from where they are to where they want to be.
As we say to clients, "Is there anything more important than securing your future and having a great life?"
But to enable us to be sure on what we advise, due diligence requires us to use and examine cash flow forecasts to build your own 'personal sat nav'.
So, as every doctor would surely agree:
"Diagnosis before prescription is best!"
The Financial Tips Bottom Line
Use cash flow forecasts. As the IFP say, by matching your finances to your goals you will:
- Have a much clearer view of where you are going in life
- Reduce the stress involved, and
- Be in control, on track and have peace of mind
ACTION POINT
Make sure you use this important tool. If you have an adviser, ask them to build you your own cash flow forecast.
by: Ray Prince
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