Plan Well to Live Well on World Financial Planning Day
You may hear the term “financial plan” and imagine thousands of euros spent and hours in a stuffy broker office discussing the benefits of a diversified portfolio. Or maybe you think financial plans are only for those who have lots of money. Both statements are untrue. Every adult needs a financial plan, no matter how much money you have (or don’t have) and how old you are. But I do know that a financial plan can seem overwhelming to lots of people.
Wikipedia describes a financial plan as a “comprehensive evaluation of an individual’s current pay and future financial state by using current known variables to predict future income, asset values and withdrawal plans.” That is some mouth full and could put lots of people off the idea of putting a financial plan in place and it’s no wonder that the perception is a financial plan is needed only for the wealthy and sophisticated. When every adult should have one.
A financial plan at its simplest is a map to reach your goals. Not just your financial goals… Most people want to make and have more money, but money is not the goal. You need a financial plan to reach your life goals; money is just the tool for this. Do you want to retire early so you can travel the world? Are you consumed with credit cards and want to live debt free? Do you wonder how you will finance your children’s third level education? These are life goals that require a financial plan to reach them. All you need to know is where you are today and where you want to be tomorrow or any stage in the future. The financial plan just connects the two.
Where are you today? This is your current financial overview.It’s basically made up of two documents: net worth and budget. If you don’t have these already, you can easily create them.
- Net worth: Make a list of all your assets with their worth (cash, savings, house, car, etc). If you have multiple savings and retirement accounts, this is a good time to dig up the statements and get an updated amount for each. Then list all debts (credit cards, loans, mortgage, etc). Subtract your debts from your assets and you have your net worth.
- Budget: How much you bring in and spend each month. The goal is to gain a realistic idea of what you spend, where you spend it and what you have left at the end of the month. This allows you to identify areas to save and where you may be overspending.
Where do you want to be tomorrow? Where do you want to be in one year? What about five or 10 years? Create your own life goal bucket list. Don’t worry about whether it seems financial or not; remember that money is only the tool to reach your goals. Now separate them into long term (5+ years from now) and short term goals (within the next 5 years). Finally, prioritise them by importance.
How do you get there? This is the financial plan. How can you use money to reach these goals? For some goals, this is simple enough. Want to go on a round the World cruise next year? Estimate the cost and create a monthly savings plan. However, most of us have multiple goals. We want to travel, get out of debt, save for our children’s education, buy a home, protect our family, retire someday and more. A financial plan takes into account all of your goals. It creates a detailed map based on your prioritised goals, showing you exactly where to spend your money, where to save, and for how long. Since financial plans often include complex subjects such as life insurance and wills, a financial planner may be necessary to help you navigate. This is where our team at Castle Capital Financial Planning will work with you.
So you see, a financial plan is not just some fancy statement with pie charts and lots of figures. Whether you are a single 20 something who wants to start your own business but is saddled with credit card debt, or you are a married 50 something who wants to be sure she has enough to retire, a financial plan simply provides the map to get you there.
Let’s talk about the values you want to incorporate into your Financial Plan. To get more information on this, email our Corporate Financial Planner Garrett McArdle at garrett@castlecapital.ie
Castle Capital Financial Planning