Financial planning for dummies!
I rememebr reading that one of the main reasons that the majority of consumers did not do any financial planning was the perception that they did not have sufficient money to justify a financial plan. Add to this to the existing perception that financial planning is a really onerous and complex process and that most advisors will just try to sell you more insurance and it is no wonder that many people are scared off.
Certainly there are many players with massive hidden agendas that would have us believe that financial planning is incredibly complex and that you need significant funds and complicated models to do it. However, as the title suggests, this article aims to expose the perception that financial planning is only for the wealthy and super intelligent!
Everyone should have a financial plan and given enough time and effort everyone could do their own financial planning too . Truth is that financial planning is a little like DIY around the house – anyone can do it – but it might take you a lot longer than an expert and might ending up costing substantially more in the long run – so in the end you call in the plumber to fix the broken geyser. It is the same with Financial Planning – do it yourself and it might take longer and cost you more in the long run or else call in an expert .
So what is financial planning?
Simply put, from a financial planner’s point of view, it is about objective (measurable) advice that results in a plan to manage current financial risks and achieve future financial needs and goals . It is not about product or sales! These come right at the very end of the process and could be used to flesh out the plan. It is also quite possible that the plan identifies that no products are needed or appropriate. From a financial planning point of view, most people face at least 5 common risks. They are:
- Dying too soon and leaving debt or dependents
- Living too long (insufficient funds on which to retire)
- Disability (over a short or extended period)
- Funds for short term emergencies.
- Debt!
A financial plan should identify the potential impact of any of these areas (as well as any others) and should be designed to minimize its impact.
Next week I will look at each of these areas in a bit more detail.
