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The importance of personalised financial planning

Published Jan 19, 2022

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PLANNING POINTS

By Ryan McCaughey

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In December I made the commitment to you to share a monthly article focusing on what I feel are the pertinent components of a well-structured and sound financial plan.

In this month’s article, I’ll go into more detail about the importance of a well-structured financial plan, as well as its benefits throughout your financial journey.

In this unusual time we all find ourselves in, reviewing your financial plan is one of the things that is within your control. Benjamin Franklin said: “If you fail to plan, you are planning to fail.” Your ultimate long-term financial security depends on the plans you put in place today.

Importance of a personal financial plan

Having a detailed financial plan gives you a strategy to make practical financial decisions in all aspects of your life. The strategy is a step-by-step approach to meet your life goals, and acts as a guide as you go through your life’s journey.

Regardless of your income, planning your personal finances with a Certified Financial Planner (CFP) will put you in control of your income, expenses, and investments, such that you can manage your money to achieve your long-term financial security goals.

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Why is personal financial planning important?

Having as personalised financial plan is important for the following reasons:

  • It will increase your savings.
  • You will enhance your standard of living.
  • You will have an emergency fund.
  • It will help you work towards realising your dreams.
  • It will help you towards enjoying a comfortable retirement.

What does the financial planning process involve?

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As with anything in life, effective and comprehensive planning is the only way to ensure the achievement of your long-term financial goals.

A rigorous financial planning process, subscribed to by the Financial Planning Institute of Southern Africa, incorporates six clearly established steps designed to ensure effective, professional, long-term, and bespoke intergenerational financial planning:

1. Establishing and defining the professional relationship and service commitment.

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2. Gathering comprehensive information, incorporating your individual, business, and family goals and objectives.

3. Analysing and evaluating your present financial status (as well as that of your trust or business if you have one), and identifying risks and gaps.

4. Developing and presenting financial planning recommendations and the associated products, structuring, and investment solutions for approval.

5. Implementing the recommendations according to agreed implementation time lines.

6. Monitoring and regularly scheduled reviewing of the performance and delivery on expectations of the long-term financial plan.

Although the initial stages of this process are often cumbersome and time consuming, the plan that emanates from this process provides absolute clarity on your future financial position, and that of your family. It relates to your working life, possible incapacity, retirement and death from a capital, income tax, capital gains tax, and estate duty perspective, taking account of your current provisions and current market conditions.

The implementation of this longer-term strategy, underpinned by a rigorous ongoing management and review process, ensures that your expected outcomes are continually adjusted for changes in personal circumstances and market conditions.

How do you create a successful personal financial plan?

Engaging the services of a CFP professional can assist you in establishing a successful plan. Here are five key areas of focus:

1. Understanding your current financial situation.

2. Recording your financial goals, both long- and short-term.

3. Establishing an investment portfolio that is optimally structured to meet your long-term needs, while taking diversification and costs into account, and structured to avoid unnecessary taxes.

4. Implementing the right plan.

5. Reviewing your financial plan regularly.

Next month, I’ll continue to offer my perspective on a sound financial plan, while focusing on an optimally structured investment portfolio.

Let’s hope 2022 presents us with more opportunities than challenges. I’d encourage you to contact your adviser to ensure that your financial plan is up to date. If you don’t have one, and would like to set up an appointment, visit www.fpi.co.za for a list of CFP professionals near you.

Stay safe.

Ryan McCaughey, a Certified Financial Planner, heads the Cape Town office of Hewett Wealth. He is the 2021/22 Financial Planner of the Year.

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Finance

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