What Does Financial Planning Involve?

Many people believe that financial planning simply involves investing money, however there is much more to this important role.

Investment advice is one part of financial planning, however a comprehensive financial plan also includes budgeting, wealth protection, retirement planning, estate planning and even business succession planning in the case of business owners.

In this article we will cover some of the major areas included in financial planning.

Growing Your Wealth

This is the activity most commonly thought of when talking about financial planning.

Growing your wealth through investment is an area that has been covered by financial planners for many generations.

A financial planner will consider your goals and objectives, your investment timeline and your tolerance to investment risk when determining your ideal investment plan.

Depending on your own unique situation, a financial planner could recommend that you hold all of your money in cash, or at the other end of the spectrum they could recommend that you put your money into a high risk margin lending strategy.

Ultimately any investment recommendation should always match your needs and what you are comfortable with.

Protecting Your Wealth

There is no point building wealth if you are not going to protect it properly. The most common method used to protect wealth is insurance.

A financial planner may recommend an insurance plan for you incorporating life insurance, income protection, trauma and TPD insurance.

Each of these covers work separately, but as a package they complement each other and ensure that your ability to maintain and grow your wealth is protected in the event that you suffer a serious illness, injury or death.

Retirement Planning

Retirement planning is one of the most important aspects of financial planning for many Australians who do not wish to rely on the aged pension.

A good retirement plan shouldn’t just dictate how your superannuation is invested, but should also address your income needs at the time of retirement and what steps need to be taken in order to achieve your retirement goals.

Your retirement plan should also cover the tax implications of the plan as well as the appropriate structure for your superannuation, which could include the use of a self managed super fund.

Estate Planning

An often overlooked part of financial planning is estate planning. Estate planning is the process of determining how your assets will be treated in the event of your death.

Estate planning is more than just drawing up a will. A good estate plan should ultimately result in the right assets being transferred to the right people at the right time, all in the most tax effective manner.

By drawing up a will without considering the taxation implications, you could expose your loved ones to unforeseen tax liabilities which could erode the value of the assets you pass on. Working in conjunction with your accountant and solicitor, a financial planner can help to draw up a comprehensive estate plan.

Ongoing Reviews

The final piece of the financial planning puzzle is to ensure that you plan is regularly reviewed and kept up to date.

Many things can change during the course of your life, so it is important that your financial plan also evolves to keep pace with the changes in your life.

A good financial planner will review your overall position at least annually, and in the meantime you should let them know of any major changes that occur.

Do You Need a Financial Planner?

It could be argued that all Australians could benefit by using a financial planner, however this isn’t always practical.

Some people successfully manage their financial situation on their own, however it never hurts to see a financial planner for a second opinion.

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