As the adage goes if you fail to plan then you plan to fail. Probably the most important plan you will ever make is your
Personal Financial Plan. The reason is this will give you the steps you need to take in order to:
- Understand what you need to do to live the life you want to live
- Help to avoid running out of money
- Provide you with real and lasting security for your family and dependents
- Give you clarity about what your financial future looks like
- Help you achieve peace of mind about money and not have to worry about it
- Give you more time, more freedom, more choices and more life
One crucial question the plan will answer for you is “
what’s my number?”
I have written several blogs about the concept of the number, which is a completely different way of thinking about the rest of your life (from Lee Eisenberg’s book, The Number). It’s the assets you need to maintain your lifestyle without ever running out of money. Once you have the answer to this illusive question you can then start to figure out how you can bring forward the date when you get there.
And for most people this is a really important deal, some people may not want to retire or change much in their lives but everyone wants to achieve financial independence, to have a choice about what they do with their time, to feel comfortable they are financially secure without losing their lifestyle.
Other answers your financial plan will throw up are how much you have at the present and how this will build or reduce over time. Armed with this knowledge we can tell you the age at which you will achieve independence assuming you continue doing what you have probably been doing for years without making any changes.
But a plan is no good unless it has some ways to bring forward your financial independence date and show you what you need do to increase your wealth and get you closer to that independence target. So we look at other scenarios. An obvious one is to look at your current tax rate on all of your earnings. Don’t forget it is not what you earn but what you keep that matters. So coming up with ways of paying less tax means you will keep more and so achieve financial independence sooner.
Often people don’t look at their expenditure but controlling this will again bring forward that Independence Day and what better incentive than to know that doing so will enable you to actually achieve financial independence sooner.
A financial plan will also show you how well you and your family are protected in the event of some unforeseen event and what options are available to you to improve things for them. It will help you with your estate planning, exiting a business or even decisions about changing jobs, taking on investment risk or simply being more sensible and planning what you do with your money.
I’m happy to outline in more detail the process we go through to develop your personal financial plan, just give me a call or send me an email.
Andy Parker
Chartered Accountant and Chartered Financial Planner