When to start financial planning and why is it important?
One of the greatest misconceptions about financial planning is that only the wealthy need to do it. Financial advice is for everyone and those with less income probably need to plan earlier in life to make sure they have the right provisions in place.
The second misconception is that financial planning is just about budgeting… again, this is not true. Budgeting will be a part of any great financial plan but actually it’s a relatively small element. In this article, I iron out the confusion between budgeting and financial planning, explaining why it is important.
What is the difference between financial planning and budgeting?
Budgeting is about the here and now. It focuses on allocating money on a monthly, quarterly or yearly basis to make sure you can afford to pay for all your bills. If done right, you’ll have something left over for your “wants” rather than just your “needs”.
Financial Planning done right doesn’t just look at the here and now as it is essentially your financial road map for the future. It should incorporate the big questions like – When do you want to buy your first house, have children, or use private education? Will you get married or when do you want to retire? What will retirement look like for you? How will you get to the position to afford a house deposit?
Only when you have your bucket list and your timeframe does budgeting come into the equation because to reach your aspirations, we will need to plan your finances so that you have the money you need when you want it.
What is financial planning?
In my experience, most people consider a financial adviser’s job to be really dull and assume it’s all about the numbers. That could not be further from the truth. Yes, ultimately it’s my job to look at the numbers, but appointments are rarely dull and that’s not just from my perspective.
Most will be surprised to hear one of the greatest parts of my job is helping tease out the list of things you would like to get from your life, understanding why they are important to you, before finding a solution to help get you on track of where you want to be.
Budgeting doesn’t really do that.
Budgeting keeps you on the straight and narrow today, but it doesn’t look beyond the numbers. If you want to know more, head over to our useful article explaining what financial adviser does.
When should you start financial planning?
So when should you start financial planning? Ideally, years ago, but don’t panic if you haven’t managed that. There is no time like the present. There is also no such thing as starting too early, but it is entirely possible to start too late.
That said, we like a challenge so even if you think you might have missed the boat, allow a financial adviser to come in with a fresh set of eyes and ideas may well help you think of something that you have not!
Why do you need a financial adviser?
There is nobody that knows your finances better than you yet that doesn’t always mean you can give yourself the best advice.
For those gym-goers out there… my fitness goals are to be fitter and stronger. I realise these goals are perhaps woolly and vague but, lots of financial plans often are too. When I go to the gym I work hard and I push myself… when I use the gym with my personal trainer… not only do I work harder, I lift heavier, push harder and come out absolutely exhausted.
But feeling great.
In both scenarios, I will have done myself some good and exercised well. However, with my personal trainer, I have someone supporting, encouraging and challenging me every step of the way. Steph understands my goals, she knows how to get me from A to B efficiently, safely and effectively. She knows when to push me and when I have hit my limit or when I am just copping out!
Whilst each of those things are essential she also checks my form and makes minor tweaks to stop me from falling into bad habits or cheating myself. To reach my goals I probably need an equal measure of encouragement and support mixed with a healthy dose of challenging.
Financial planning is very much the same. Don’t panic, because I won’t insist you do 20 press-ups before we start working on your financial plan. I just mean – yes it’s entirely possible to come up with your own financial plan, but when it’s not something you do every day will you remain accountable? Will you remember to stick to it?
Will you review it regularly, avoid lifestyle creep, see any gaps or make necessary tweaks? Or would it help to have someone who understands your goals? Someone to support, encourage and challenge you could help you find the most efficient and effective way to get from A to B.
Without this, could you push yourself to remain on track?
Why you should start financial planning
No matter what stage of life you are at or the level of wealth that you have, it is important to have a financial plan to help you achieve your goals. Budgeting will always remain a part of the process but the fun starts when you set yourself a goal, visualise where you want to be and how it will look and feel.
Add to that the feeling of pride when you can actively see yourself successfully working towards your goal. Great financial planning makes that entirely achievable. I said earlier that one of the greatest parts of my job is finding out what you would like from your life, but another is seeing you achieve.
For more help and advice or to receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Yorkshire Financial Planning on 01482 275540 or complete our contact form here.
