You may be familiar with the saying, “People do not plan to fail. They fail to plan.” Those words have a great deal of truth, and financial planners have up-close views regarding how this plays out over time.
Somewhere along the line, financial planning became known as a service reserved for those who are very wealthy and at or near retirement age. The facts about financial planning show how far this idea is from the truth.
What is Financial Planning?
Financial planning is a way to ensure you can meet your financial goals for the future through proper money management now. As a strategy, financial planning works in the long term and should not be confused with schemes promising a fast or unusually large return.
Clients work with financial planners to manage investments as a way to reach financial goals. The process typically includes:
- Analysis of current financial condition
- Set financial goals for every phase of life
- Identify and evaluate potential plan of action
- Fully develop and implement a financial plan
- Consistently monitor the financial plan and make adjustments if necessary
Each financial plan should be unique to the individual, but most plans will include:
- Cash flow analysis indicates how much you make versus your debts. This is a critical step for many clients who are unaware of their spending.
- Assess the risks of an illness or disability that could leave you unable to work.
- Retirement planning to help you decide how much you need to live comfortably.
- Your planner will assess and invest your money to provide the funds needed to meet future financial goals.
- Your superannuation funds are likely to be one of your most significant investments. Your financial advisor will help you make decisions designed to maximise financial opportunities.
- Proper tax management is critical to protect all investment returns. Your financial planner can help you take advantage of strategies to leverage several tax-reduction procedures and create wealth.
- Planning for the unexpected is vital to help you weather financial storms while keeping as much money as possible.
Excellent communication is essential for successful financial planning. Specifics regarding your vision for the future are vital for the best experience with a financial planner. Your goals and dreams for the future become much closer when you have an expert working to help you succeed.
When to Start Planning Finances in Australia
Even though a significant part of your financial planning will be geared towards your retirement, you should not wait to start preparing. Most financial experts agree that the sooner you begin working to plan your financial future, the better. The logic behind this is straightforward:
- Compounding begins earlier and continues longer – While it is natural to want to enjoy some of the money earned through investments, reinvesting your profits can put you in a much better financial position in the long run.
For Example- An initial investment of $10,000 in stocks may grow by 10% each year through gains and dividends. If you continue to reinvest the profits year after year, your money can grow exponentially. Compounding is often an easier way to build wealth because you are investing money coming to you above and beyond your regular income.
- You can make your goals clear and manage risks – Working with a financial advisor when you are younger provides greater opportunities for bigger dreams. At the same time, you can have money in place to help you should an unexpected illness, accident, or disaster strike. If you put a portion of your money aside to help manage risks sooner rather than later, you will be better equipped to deal with unpleasant situations down the road.
- You can enjoy peace of mind – Money is a crucial tool and can be a source of significant stress, especially if you are spending time trying to make ends meet. Working with a financial planner will start you on the best footing possible. From there, you will be able to visualise your future as you see the financial gains continue.
What Does a Financial Advisor Do?
Financial advisors can wear many hats depending on whether they specialise in one or more areas of financial expertise. When you begin working with your financial planner, you can expect to fill out a financial health questionnaire. This ensures your advisor has the most precise and up-to-date snapshot of your financial situation. Additionally, financial planners can assist with any of the following:
- Investment advising: A financial advisor offers investment advice that fits your style, goals, and risk tolerance.
- Debt management: A financial advisor finds ways to help you pay your debt and avoid debt in the future.
- Budget assistance: Your financial planner offers tips and strategies to help you meet your short- and long-term goals by budgeting.
- Retirement planning: When your advisor creates a saving plan made to meet your needs, you can confidently head into retirement.
- Estate planning: Planning how to divide your estate after you die is a difficult task. Your financial planner helps you identify the people or organisations you want to remember and creates a plan to carry out your wishes.
- Long-term healthcare and insurance assistance: Your financial planner will assist you in attaining the long-term care solutions and insurance options that fit your budget.
- Tax planning: A financial advisor can be extremely helpful regarding taxes. Your planner can:
- Help you prepare tax returns
- Maximise tax deductions
- Ensure the best use of the capital gains tax rates
- Make plans to minimise taxes in retirement
Twelve Things to Ask a Financial Advisor at the First Meeting
Think of your first meeting with a financial planner as a job interview because, in essence, you are looking for a professional to work for you. While you may have your own list of questions for potential advisors, here are a dozen questions that can help you decide if an advisor is right for you.
- Do you have experience with clients who are similar to me?
- What are your various fees and charges?
- Do you have any areas of speciality?
- When are you available to contact you with questions? Do I schedule a meeting, or is your door open?
- Do you offer education and ongoing support to help me understand the path of my financial future?
- Who is your typical client, and can you offer any testimonials or reviews?
- What is your approach towards finance and investing?
- Am I consulted before significant decisions?
- How often will they provide updates?
- How do you choose the products you recommend, and do you receive incentives?
- What type of investment products do you typically recommend to clients?
- How are complaints handled, and how can the arrangement be dissolved?
Three Red Flags Signaling You Should Avoid a Particular Financial Planner
Even though you may want to believe the best about your planner, you may have the unfortunate luck of finding one without scruples. These three red flags should cause you to pause before agreeing to work together.
- They do not hold a license issued by the Australian Securities and Investments Commission (ASIC) or work for an Australian Financial Services Licence (AFSL) holder. An even more significant red flag would be if ASIC banned or disqualified them. Fortunately, the commission makes learning about an advisor easy. You can check with the commission’s Banned or Disqualified Persons register as well as a Register of Advisors who are licensed by the commission to provide financial advice.
- Advertising above-market investment returns is another sign that you should avoid a particular financial planner. Always do your own research, and remember, if it sounds too good to be true, it probably is.
- Any advisor asking you to deposit funds into their personal account should send you in the opposite direction. In notable cases, financial planners made this arrangement with clients, claiming they would invest the money from their personal accounts. After the deposit, the planner would use the money for their own gain.
As you can see, financial planning has many working parts to consider. This is why talking to a financial planning expert is the best way to ensure that your financial future is growing and secure.
The experts at Grace Life and Wealth will sit down with you and take time to understand your hopes and plans. Then, we will create a customised plan to serve as a map to guide you as you move closer to your goals. To learn more about the ways Grace Life and Wealth can put you on the path to financial security, please reach out to us.
