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What is financial planning?
Financial planning can help you achieve your
financial goals and accumulate wealth faster.
This section is designed to introduce you to
the benefits of financial planning. If you want to make your money work
harder, and if you want a secure and financially independent future,
then please read on…
What
is financial planning?
According to the Financial Planning
Association of Australia (FPA), financial planning is the process of
achieving your lifestyle goals through the proper management of your
finances.
Thinking of buying a home, a holiday home or
an investment property? Perhaps you are saving for your children's
education, managing debt or planning for an early retirement. These are
all lifestyle goals. Careful planning is essential in helping you
achieve your lifestyle goals. That is where your financial planner can
help. 
How
can financial planning help you create wealth?
A financial planner can show you how to:
- determine the right investment strategy
for you
- select the right investments
- pay less tax
- package your salary effectively
- save on interest payments
- use debt to your advantage
- choose the appropriate level of insurance
cover, and much much more.
Why
should I talk to a financial planner?
Managing personal finances is not easy. It’s
like making your way through a complex maze. How do you choose
appropriate investments? Do you understand all the tax implications of
investing? These are only some of the issues that you need to consider
when you are trying to manage your finances. Most people have neither
the time nor technical expertise.
Financial planners undergo extensive
training and are licensed to provide advice on areas such as:
- wealth accumulation
- investment strategies
- insurance options
- superannuation
- redundancy
- estate planning
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- debt management
- gearing strategies
- taxation planning
- retirement planning
- social security
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Reach
your goals in 6 easy steps!
The financial planning process generally
involves 6 key steps. By following these steps, you get an
understanding of where you are today, where you want to be in the
future and what you need to do to get there. These steps are:
- Collecting your financial data - such as
details on your income, debt level, commitments, etc. – to determine
your current financial position
- Collectively identifying and then
prioritising your lifestyle and financial goals
- Outlining any financial issues or hurdles
that may prevent you from reaching your goals
- Preparing your financial plan with the
appropriate strategies to help you achieve your goals
- Implementing your financial plan once you
have understood and are comfortable with the recommendations
- Reviewing and revising your plan at least
annually to ensure it stays on track even if your personal
circumstances change
How to
choose the right financial planner?
When choosing your financial planner, make
sure they have all the necessary skills and qualifications; and they
represent a reputable organisation committed to servicing its clients’
long-term needs.
Financial planners must meet the following
criteria:
- member of the FPA:
the financial planner you choose must be a member of the FPA. Members
of the FPA must abide by their code of ethics and rules of professional
conduct
- registration with
the Australian Securities and Investments Commission (ASIC): the
financial planner must be registered with ASIC and be a licensed dealer
in securities or be an authorised representative of a licensed
securities dealer
- supply a Financial
Services Guide (FSG): a FSG details fee structures and the range
of services they offer. It is a legal requirement for the financial
planner to supply you with an FSG
- have appropriate
qualifications: at a minimum, financial planners must hold a
Diploma of Financial Planning. Some financial planners may also be
titled Certified Financial Planners (CFP). The CFP is an
internationally recognised mark and is a symbol of the highest level of
professionalism for financial planners
- disclose all
sources of remuneration: financial planners must disclose all
sources of remuneration, commissions or brokerage they will receive on
the amount you invest. A good adviser will recommend the right
investments for you rather than try to get you into products just to
get a higher commission.
Why
have an annual financial health check?
Once you have had a financial plan prepared,
it is important you have an annual financial health check. Life changes
rapidly, and these changes can affect your personal and financial
circumstances in a short period of time. Some of these factors you have
some control over and others are beyond your control.
Let’s look at some examples that can affect
your financial plan:
| Personal factors |
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External factors |
- getting married
- having children
- getting a divorce
- being made redundant
- paying for children’s education
- getting a promotion and pay rise at
work
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- changes in superannuation
legislation
- changes in taxation legislation
- rise and fall in interest rates
- effects of inflation
- economic cycles
- investment performance
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As you can see, you would have some control
over some of the personal factors. However, the other factors are
beyond our control. As we all lead busy lives, most of us don’t have
the time or expertise to keep up-to-date on all these changes and the
impact they could have on our financial goals.
A review of your financial plan by a
financial planner is a straightforward yet worthwhile process. It
typically involves:
- open two-way communication with you
- reviewing progress in achieving your
financial goals and revising the strategies as required
- tracking your investments and analysing
the investment performance to date
- providing you with information on new
investment opportunities
- informing you of any external changes
that will affect your financial plan then making necessary adjustments
How to
contact the FPA?
You can contact the FPA either by visiting
their website on www.fpa.asn.au
or by calling 1800 626 393.
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