Welcome to “Financial Planning Fundamentals,” a four-part series from Tanager Financial Planners designed to help you grasp the fundamentals of financial planning. In this series, we’ll break down the essentials of effective financial management, starting with our first insight titled “The What, Who, and Why of Financial Planning” Each insight aims to provide clear, actionable guidance to enhance your understanding and approach to financial planning.

What?

What is the first thought that springs to mind when you encounter the phrase ‘financial planning’? ‘I wish I’d done that in 1968’, half-jokingly.  ‘Savviness’ was a cute one, along with the more predictable ‘money’, ‘cashflow’, ‘investment’, ‘savings’, ‘balance sheet’, ‘budget’, etc.  ‘Suits’ and ‘fees’ also got a look-in.

Elementally, any form of planning is the process of strategizing, with the objective of gaining a degree of control or influence over future events and situations.   As businesses, families and individuals marshalling our financial resources, people analyse where we are and what we have now, identify our hopes, fears and desires for the future, and implement actions designed to most efficiently negotiate the obstacles and opportunities on the road ahead.

Who?

Everyone has a financial plan, whether they know it or not: the CFO swamped in school fees and spreadsheets; the young worker striving to ascend the property ladder; the doting grandparent hoping to improve the life chances of children perhaps yet to be born.  Working to earn a salary implies an intention to accrue resources and probably fund expenditure; placing money in a savings account for a rainy day is a strategy to mitigate against possible crises or shortfalls.  Each of these simple examples is a future-orientated action and illustrates the point that financial planning is integral to many of our most fundamental decisions and routines.  Everyone has a plan, but the key variable is the degree to which the plan is a conscious, controlled process: do you identify clear goals and take careful, measured steps towards them? Do you make a vaguely hopeful swipe in a generally desirable direction, or do you just close your eyes and hope for the best?

Why?

As wealth managers and financial planners, we are very much of the ‘clear goals and measured steps’ persuasion.  The benefits of a structured, disciplined approach to financial planning are myriad.  The most obvious upside is that resources are deployed efficiently, with ongoing attention to improving returns and minimising costs and taxes, increasing the likelihood of achieving desired goals.  Another clear advantage to robust financial planning is that provision will be made for times of adversity, meaning that the financial impact of some of life’s inevitable slings and arrows should be minimised, or at least reduced.

There are also some less obvious advantages, however, such as the peace of mind wrought by a job well done.  One of the biggest sources of stress or concern for many people is fear of the unknown, and robust ongoing financial planning will involve looking ahead with an expert eye and anticipating problems, helping to reduce the realm of the unpleasant surprise.  Of course, no plan can mitigate against all eventualities and life remains full of surprises, both pleasant and otherwise; however, a good plan will provide ongoing reassurance that what reasonably can be done has been done, or at least considered.

To conclude more positively, it is often the case that ongoing financial planning will reveal unforeseen opportunities.  These are less likely to be ‘Eureka!’ bolts from the blue, however, than the gradual shifting and emergence of new objectives that develop and mature in alignment with the life stages of a financial plan: what people want at 60, for example, is often very different from what they envisage at 30.

Whatever the situation, 1968 has been and gone, and there is no time like the present for seizing control of the future.

Disclaimer:

This is not advice or a recommendation. You should consult with your tax attorney and accountant to determine whether any of these actions are appropriate in your circumstances.

Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. Past performance is not a reliable indicator of future results. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your initial investment.