What is financial planning? This is a question often asked by people researching this topic. In today’s article, we offer insights into this topic, setting goals, a financial planner’s role, and how to find a good one.

We have broken this guide into easy-to-digest sections, without too much industry jargon.

What is financial planning?

Financial planning is more than just budgeting or saving; it’s a thorough approach to managing your finances to achieve your life goals.

It involves understanding your current financial situation, setting realistic goals, and creating a plan to reach them.

Furthermore, financial planning covers:

  • Protecting yourself against life’s uncertainties
  • Managing and reducing taxes
  • Planning for retirement

Related reading

Let’s get started.

The financial planning process – step by step

Creating a financial plan involves several key steps:

  • Information gathering & fact-finding
  • Understanding your current financial position
  • Setting financial goals
  • Recommendation & executing your plan
  • Regular reviews and adjustments

Here’s a quick overview of each stage of the financial planning process

Information gathering & fact-finding

This stage of the financial planning process is the bedrock of this process. This is where we take the time to understand your:

  • Financial objectives (short and long term)
  • Attitude to investment risk
  • Current income and expenditure
  • Debt and other liabilities
  • Any investments you have

It is also your chance to ask your financial planner about their experience, what they will do for you, and more.

Setting financial goals

Financial goals are personal. Some may be short-term. On the other hand, many of us have medium and long term goals we would like to achieve.

Short-term financial goals could be:

  • Saving for holidays
  • Paying off debt
  • Reducing expenditure on non-essentials
  • Switching credit cards to providers offering lower interest rates

On the other hand, medium to long term goals cover:

  • Paying off your mortgage
  • A financially independent early retirement
  • Minimising inheritance tax
  • Buying a holiday home
  • Creating generational wealth
  • Saving for your children’s education

Goals are important as they give you something to work towards. Setting clear financial goals also enables your financial planner to benchmark progress, or make accurate recommendations if your current or predicted financial position is aligned with your desired outcome.

Understanding your current financial position

During this stage, a thorough analysis if your current financial position is undertaken.

If you are working with a good financial planner, they will use cash flow modelling software to identify strengths and areas for improvement.

For example, they will be able to see:

  • How long it will take to clear your mortgage
  • How much you need to save and invest to live your ideal retirement
  • Whether you are likely to have a large inheritance tax bill
  • What would happen if you fell ill or were unemployed
  • The potential impact of tax as the value of your assets and investments grow

They can also make adjustments to the data to factor in potential future earnings, whether paying into a pension is better than overpaying your mortgage, and more.

This data provides a working, adjustable snapshot of where you are now, and what you need to do to get where you want to be.

Making recommendations & implementing the plan

Once the fact find is complete, you’ve discussed your goals and your planner has analysed the data, they can make accurate recommendations.

This can include:

  • How to plan to reduce inheritance tax
  • Investment recommendations (based on your attitude to risk)
  • Overpaying your mortgage each month
  • Maximising your ISA & pension contributions
  • Clearing debt that is costing you more interest than you are earning from your investments
  • How much you need to save toward your children’s university costs

As you can see, as we head to the last stage of the financial planning process, a lot of work goes into helping you reach your financial goals and objectives.

Reviewing, monitoring, and adjusting the financial plan

Financial planning isn’t a ‘set and forget’ process.

It’s certainly not a one-off exercise.

Regularly reviewing performance against your plan is key to ensuring you are on track to your financial goals.

If your plan needs adjusting,  this can be addressed and goals can be altered to reflect a change in circumstance or a change in your overall objectives.

Related reading

The importance of financial planning

Financial planning is essential for several reasons.

It provides a clear roadmap to achieve your financial goals and helps manage your income more effectively.

Furthermore, It prepares you for unexpected financial emergencies and fosters better investment decisions.

Ultimately, sound financial planning ensures your financial security and peace of mind.

How to find a good financial planner

Selecting the right financial planner involves:

  • Researching their qualifications
  • Gauging their experience
  • Understanding their fee structure
  • Assessing their approach to financial planning

A financial planner will affectively be the custodian of your wealth and long-term financial plans.

As a result, it’s important to find a financial planner that will meet your needs, offer the service you require, and give you the confidence they will be the right person for you.

What is Financial Planning? Quick summary

Financial planning is an important process for managing your finances and achieving long-term goals.

Whether you undertake it yourself or seek the help of a professional, a well-thought-out plan is key to financial success and stability.

Quick FAQs

Need a quick recap?

Here are a few questions and answers that nicely summarise the content of this article.

What is the purpose of financial planning?

The main purpose is to create a roadmap for managing finances effectively to achieve financial goals. It helps you establish your goals, take stock of your current financial position, and allows you to gain clarity on how to achieve your objectives.

How does financial planning differ from other financial services?

It’s a holistic approach that covers various aspects of finances, unlike specific services focused on individual financial products. For example, inheritance tax planning focuses purely on one area of your financial life. Whereas, financial planning looks at your overall finances, income, expenditure, and goals and covers a broad range of topics like investing, pensions, insurance, mortgages, and more.

What are the benefits of hiring a financial planner?

They provide expert advice, help in making informed decisions, and offer personalised plans to meet financial goals. They are experienced financial professionals and offer a wealth of knowledge to help you make good choices and achieve your objectives.