There are many positive benefits of employing the services of a financial planner. Although some people may think they are only for the people ‘with money’, this statement couldn’t be further from the truth – and why? Well, let’s start with a question.
What is the present value of $1000 today? Simple right? It’s $1000. Although this makes sense…it’s not correct.
As any good financial planner will tell you the present value (PV) of any sum of money is the sum of all its future cash flows or future value (FV). No, this is not technical, financial trickery – you might need a financial planner to assist with getting your head around this concept.
Planning for your future
Financial planning looks not at what you have now but what you realistically can achieve in the future to make you and your family financially secure and comfortable, then works its way backwards from there.
Getting back to our question, a financial planner sees not $1000, but sees the sum of all the future cash flows that $1000 could generate if invested correctly for you over a defined period. Would you like $1000 now or $3000 in the future? Financial planning helps you achieve this.
What do financial planners do?
Accounting for the Financial Planning Association of Australia, a financial planner will be able to help you understand your financial situation, develop a strategy, and give you guidance on things such as funding your children’s education, helping with budgeting and tax planning, having enough money to live comfortably in your retirement, as well as with things such as debt management, insurance, estate planning and so on.[1]
In terms of the benefits you seek, maybe you are looking to pay off your home loan quicker, pay down debt, plan for private school education, build an investment portfolio or plan for your retirement – this is all done through a set of steps.
What are the steps in a financial planning process?
There are three key steps to financial planning that every manager will work with you to achieve on an ongoing basis. These steps include the planning stage, the execution step, and the feedback step.
In the planning stage, your financial planner with work to understand your financial needs, review your income, your assets, and liabilities as well as your time horizon and risk tolerance. In this stage, your financial planner will set objectives, so benchmarks that you both want to achieve. Such as have $100,000 in investments outside my Superannuation by the time I am 50.
Based on this, the manager will then look to the execution stage. This stage focuses on implementation strategies to either pay down debt or have that $100,000 work for you to grow. This growth could be through a wide range of recommended investment instruments such as bonds, bills, funds, ETFs, shares and even term deposits depending on your individual circumstances.
Then finally, the feedback step, which is a regular review of your financial plan, your financial situation, and the performance of your investment portfolio. With potential adjustments to your financial planning strategy should that be required to hit your objectives set in the planning stage of the financial planning process.
Financial planning is not something that is exclusive, on the contrary, the people that can ultimately benefit from it the most is every one of us. Planning your financial future is essentially setting yourself up now, to not put that $1000 into your pocket, but to invest into something that ensures the future and retirement you deserve.
[1] https://fpa.com.au/what-is-financial-planning/choose-cfp-professional/