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The Importance of Financial Planning
There’s no time like today to plan for the future. Financial planning prepares not only for your financial goals, but the ‘what ifs’ in life too. If 2020 taught us anything, it’s that life is unpredictable. Even the most carefully laid out plans could fall apart in the blink of an eye.
A financial plan helps you see the big picture – both short-term and long-term. When you have a rock-solid financial plan, you’ll see how every financial decision you make affects your goals. It shapes your financial future and helps you set yourself up for success whether in a few years or during retirement.
What is Financial Planning?
Financial planning isn’t as overwhelming as it sounds. When you work with a professional, you’ll set short-term, mid-term, and long-term goals.
Short-term goals are anything you can achieve (or want to achieve) in the next 5 years. Mid-term goals are any goals with a 5 – 10 year maturity date, and long-term goals are anything beyond 10 years and usually include retirement.
Financial planning can take on many different looks, but often includes some or all of the following services:
Investment planning and strategies
Retirement planning and strategies
Choosing the right life insurance
The Top Reasons you Need Financial Planning
1. Grow your income
You work hard for your income, now it’s time to let your income work hard for you. Financial planning ensures that you use your money right. With the right strategies, you can grow your income (sometimes tax-free or tax-deferred), ensuring you have enough money when you need it for your short and long-term goals.
2. Meet your financial goals
Think about your financial goals today. Do you dream of travelling the world when you retire, taking your family on a dream vacation in a few years, or buying a house in a few years? The sky is the limit when setting financial goals, but to achieve each one, you need a plan.
Just setting money aside each month isn’t enough. You need a structured investment and savings plan that offsets your tax liabilities, makes the most of your capital gains and invests your money in a way that allows you access when you need it (without penalty).
3. Family security
Financial planning involves more than managing your money, although it’s an important part of the process. It also involves ensuring your family’s security upon your passing. Financial planning includes estate planning and choosing the right life insurance to protect your family when you’re gone.
You must determine how you’ll provide for your family if you pass away and how they’ll receive/manage your funds. They are big decisions that every family must make early on to ensure that your family’s security is cared for.
4. Choose the right investments
Choosing the right investments means more than investing in a company because you like them. You need a solid strategy that considers your goals, risk tolerance, and overall tax brackets.
Financial planning includes choosing the right investment strategy, using tax-loss harvesting techniques, and rebalancing your portfolio when your allocation gets off balance as the market changes.
5. Handle inflation well
Inflation can ruin even the best financial plans if you don’t include it in your financial planning. With the value of money continually decreasing, many people find themselves with less buying power than they planned.
As you get closer to retirement, your buying power becomes even more important. Stretching your dollars and ensuring your money grows is the best way to hedge against inflation risk.
What are the 5 Steps to Financial Planning?
Understanding the steps to financial planning can help you make the most of it. You’ll need more than your income, you must evaluate your assets, financial goals, tax brackets/liabilities, and your need for family security.
Using these five steps will help you plan for your financial future.
1. Determine your financial goals
Before you can plan for your financial future, you must know what you’re planning for. Writing down your goals, establishing them, and making sure all parties are on the same page is crucial.
To determine if your financial goals are realistic and ideal, make sure they are quantifiable, have a specific time frame (1 year, 5 years, etc.), and have a clear distinction between the ‘must-have’ goals and the ‘would be nice’ goals.
Make sure your financial advisor is on the same page as you. Be as honest and open about your financial goals as possible. This is how your financial advisor will help you measure your progress, realise success, and reevaluate your situation and progress periodically throughout the process.
2. Provide your financial information
Your financial advisor will need all your financial documentation to get a clear picture of where you stand.
They need to know your income, assets, expenses, liabilities, and overall goals. Your advisor uses this information to create a financial plan that suits your needs/desires the most.
Along with the financial documentation, you must disclose your risk tolerance. How much can you stand to lose? How much time do you have to offset any losses?
3. Determine your financial situation
Once the financial advisor has your financial information, he/she will assess the information and compare it to your intended goals. Advisors create reports that determine your savings ratio, liquidity ratio, and debt-to-income ratio.
Advisors use this information to craft the best financial plan for your situation. They’ll use the information to determine the right investments, how long to tie up specific funds, and how to ensure you have enough money for milestones, such as children going to college or retirement.
4. Creating the financial plan
Once you provide all the necessary information (documents and verbal information) to the advisor, they’ll craft your financial plan.
Together you’ll decide what works for you (and what doesn’t). You’ll decide how to proceed, who will manage your investments, how you will handle tax reporting, and how often you’ll revisit your plan to make sure you’re on track.
5. Implementing the financial plan
The final step is putting it all together. Your advisor will work with you to open the appropriate investment accounts, buy the right life insurance, set up the right estate documents, and implement a financial plan.
What Does Financial Planning do for You?
Financial planning is an important part of any household. It not only helps you achieve financial security today but in the future too. When you have a proper plan in place, you may achieve the following:
Feel less stress around money
Money is one of those things that can make or break you. If you have enough, you feel great. If you’re hurting, your whole life feels like it’s falling apart. Rather than letting money control your life a financial plan helps you take control of your money. When you feel in control, you’re more likely to be able to handle everything else that goes on in your life with greater ease.
Save for a rainy day
We have no idea what the future holds for us. Saving for a rainy day ensures that no matter what life throws at you – an illness, a major car accident, or a house crisis, you can cover it (either with cash or your insurance policies) and move on, without feeling a major financial burden.
Be prepared for the long-term
Life expectancies today are much longer than ever before. Preparing financially to live well into your 80s or 90s is crucial. Your regular retirement planning may not be enough, even though it sounds like it, many Americans are finding themselves without enough to cover the long-term.
Financial Planning is an Important Piece of your Puzzle
Don’t let financial planning go by the wayside. It’s one of the most important parts of your life, today even though it plans for the future.
Setting yourself up for success now means a more successful (and less stressful) future. Even if retirement, old age, or any other goals you have seem far off, they all require a solid plan today to achieve your goals. Without the right plan, these milestones will sneak up on you when you are unprepared and no one wants to entire their golden years unprepared or worse yet, leave their family unprepared upon your passing.
“Chad is a pleasure work with, throughout my dealings with him he has always maintained care for our relationship over and above my portfolio. He has ensured our communication and working timelines are met to the highest standard. I’ve found Chad to be very thorough and more than happy to take the time always to keep me updated and continue to answer all questions in a timely and professional manner. He is also very personable and courteous, with a keen attitude to deliver the best service. Chad keeps updated on current market developments and regulations, and his attention to detail and analysis of my portfolio has been most informative and insightful. In my opinion, Chad is a knowledgeable and professional advisor, and I feel comfortable entrusting my international arrangements and overall portfolio management to him. I would happily recommend Chad to others who require assistance regarding their financial planning.”
Warren Drue - Partner- WEBBER WENTZEL
“I’ve been always targeted by many financial advisors and International investment groups over the years. I have had one fund with an offshore investment group before which I canceled in 2008 and since then I was uncertain if I should do something again. I met Kirk in 2014 and he kept contact with me over the next few years. In 2017 I thought of investing and starting some fund and I have immediately contacted Kirk since he has left a very strong impression as a competent, pleasant, and very well informed advisor. Now I have a few funds with AMA and I am very happy with the service level, professionalism, and guidance from Kirk. I am very confident that I will reach my future goals.”
Ivan Stefanovic - Commercial Director - Scania
“Warwick Hamilton has, since 2014, been the financial advisor dealing with the proceeds of my UK pension, invested via QROPS in an STM Pension Transfer Plan. I am sure that I am not his biggest client but you would not think so, given the excellent support and service that he gives me. I have been continuously impressed by the way he ensures that these investments are managed to perform well, align with my risk profile; and with his ethical, informative, honest and straightforward way of handling those affairs. I have kept these investments with Warwick despite approaches to change financial advisors because he ensures that I am kept well informed and I trust him.”