How financial planning goes beyond simple calculations

When you first think of seeking financial advice, it might be the calculations that you focus on. The figures are an important part of understanding your financial situation and what you can achieve. However, it’s just a small part of what financial planning is about and where it adds value.

Financial Planning Week was celebrated earlier this month, aiming to encourage more people to consider the benefits of working with a financial planner. It’s the ideal time to step back and consider what you get from working with a financial planner, it should be far more than simply working out what your pension will be worth in ten years’ time.

Financial advice vs financial planning

You may think financial advice and financial planning are essentially the same thing or that the two terms can be used interchangeably. However, they’re actually two different ways of working. They both have benefits, and which is the right option for you will depend on your needs and circumstances.

Financial advice can be useful if you have a certain question you want answering. For example:

• How can I mitigate Inheritance Tax?
• How much will my pension be worth at the point of retirement?
• How should I invest savings?

Financial advice can help you answer these and give you a clear picture of your financial situation now and in the future.

In contrast, financial planning takes a more holistic approach. The aim is to create a comprehensive financial plan that puts you at the centre. This means considering your long-term aspirations and any concerns you may have. This can help you align financial decisions with your lifestyle and goals.

For instance, whilst financial advice can offer you guidance on pension values and the most efficient way to withdraw money at retirement, financial planning will look at the bigger picture. During the process, for example, it may ask questions like:

• Can you afford to retire early, would you want to if it were an option?
• What is the right level of retirement income to achieve your goals?
• How can retirement income be used to address other concerns, such as wanting to help family financially?

As you can see, it’s about more than calculations. Instead, financial planning focuses on helping you use your assets to meet goals. There will be different points in your life where you can benefit from both financial advice and financial planning. When deciding between the two, it’s important to look at the value each can offer in terms of your needs.

The value of financial planning

Where financial planning adds value to you, will depend on your circumstance but here are some points to keep in mind:

Understanding finances in the context of personal goals: Whilst we often have goals that require money to achieve, it can be difficult to understand if you’re on the right track. You may, for instance, hope to retire five years early, but is this possible with your current pension contributions or other assets? Financial planning can help you see your financial decisions in the context of what you want to achieve. It’s a benefit that can help you proceed towards goals and set realistic expectations.

Highlight where mistakes are being made: Finances can be complicated, and we’ve all made a few mistakes along the way. Having another pair of eyes look over your finances can highlight where mistakes have been made. Perhaps your savings account isn’t offering the best returns available or your investments haven’t been reviewed to reflect life changes. Regular meetings with a financial planner can help reduce the chance of mistakes happening.

Planning for the long term: We often know we should plan financially for the long term, but it can be difficult to understand how decisions now will have an impact. If you’re employed, you’re probably paying into a pension, what kind of lifestyle will this afford you in retirement? You might see the contributions leaving your payslip each month, but understanding the full impact of these sometimes passes us by. Using tools such as cash flow modelling, financial planning can help you visualise how steps taken now will influence your financial future.

Consider the unexpected: Much like the above, we know we should plan for the unexpected. You might already have an emergency fund set to one side but it’s important to consider a range of scenarios to improve your financial resilience. A financial planner will ask questions, such as what would happen if you or your partner passed away or would your retirement income be affected if investment values fall, and help you put safeguards in place where appropriate.

Confidence: Money can often seem complex and be a worry in day-to-day life. Financial planning aims to give you the confidence to enjoy life, without worrying about finances. One milestone where this is often evident is at retirement. Retirees may be concerned that they’re spending too much, too soon or will have little to leave behind for loved ones. Financial planning can help them understand their income and what it means in the long term.

Ongoing advice: Whilst sometimes a one-off meeting with a financial adviser is enough, ongoing advice has benefits too. Your situation, priorities and financial circumstances can change dramatically over time. Ongoing advice gives you a regular opportunity to discuss concerns and how your financial plan can change to suit your lifestyle.

If you’d like to chat with one of our financial planners about your goals, please get in touch.