What is Financial Planning: A Comprehensive Guide

Ever feel like your finances are running the show, instead of the other way around? You’re certainly not alone.

For many Australians, financial planning can sound as daunting as assembling IKEA furniture without instructions - completely overwhelming.

But here’s the good news: financial planning isn’t just for CEOs or “numbers people.” It’s for anyone who dreams of feeling in control, making confident decisions, and enjoying more of what life has to offer—today and tomorrow.

Whether you want to finally master your budget, invest for the future, or simply stop worrying about life’s “what ifs,” understanding financial planning is your ticket to turning uncertainty into clarity.

Ready to discover how a little structure can open up a whole lot of freedom? Let’s get started.

What is Financial Planning?

Financial Planning is a comprehensive and ongoing process that involves gaining a deep understanding of what truly matters to you in life, identifying both your personal and financial priorities, and setting well-defined, actionable goals that reflect those core values.

What does Financial Planning involve?

This involves taking a detailed inventory of your current financial resources, including your income, expenses, assets, and liabilities, and evaluating how these can be leveraged to support your aspirations.

The next step is developing a strategic plan that not only aligns with your values but also positions you to attain your long-term objectives. Such a plan introduces a sense of order and discipline into your financial life, ensuring that every action you take is efficient, suitable for your circumstances, and congruent with the outcomes you desire.

It bridges the gap between where you are now and where you want to be, creating a roadmap that guides your financial decisions and actions in a coherent and purposeful manner.

Financial planning covers various aspects of personal finance, including budgeting, saving, investing, insurance, retirement planning, tax planning, estate planning and intergenerational wealth considerations.

So, what exactly does a financial planner do? Here's a breakdown of key components in financial planning:

1. Setting Financial Goals:

• Identifying short-term and long-term financial objectives.
  
  
• Examples include buying a home, funding education, saving for retirement, or starting a business.

2. Assessing Current Financial Situation:

• Reviewing income, expenses, assets, and liabilities.
  
  
• Understanding spending habits and financial behaviours.

3. Creating a Budget:

• Developing a realistic budget that allocates income to expenses, savings, and investments. This can involve varying levels of detail, depending on what works best for you.
  
  
• Monitoring and adjusting the budget as needed. Are you spending more or less than you thought you’d need?
  
  
• Budgeting is not necessarily about being strict about your spending; rather it’s about understanding where your money is going, what’s left over and what is really costs to fund your lifestyle. This builds a strong foundation for building strategy and understanding your longer-term financial capabilities, giving you the opportunity to make smaller changes now rather than material sacrifices later in life.

4. Saving and Investing:

• Establishing an emergency fund for unexpected expenses. Covering these risks means you can be more assertive with your broader strategy, such as taking on debt and/or investing.
  
  
• Investing based on risk tolerance, time horizon and financial goals.

5. Insurance and Risk Planning:

• Evaluating the need for life insurance, disability insurance, income protection and trauma cover.
  
  
• Ensuring adequate coverage to protect the family against unforeseen events, considering your available budget.
  
  
• Understanding that ‘Risk’ comes in many forms. In the short term, it could be employment risk and market volatility. Over the long term, it could be the impact inflation has on the real value of your wealth, or the risk of running out of money in retirement (both of which can be managed through early and careful planning).

6. Retirement Planning:

• Calculating how much is needed for retirement and putting a plan in place as soon as possible. It’s an objective that hopefully spans decades, filled with travel, investing in our health, seeing our families grow through 2nd, 3rd and sometimes 4th generations, recreation and doing new things. It takes a lot of work and time to build for this.
  
  
• Contributing to retirement accounts such as superannuation, annuities or other tax deferral strategies.

7. Tax Planning:

• Build your activity and strategies around tax optimisation. The less tax you pay, the more financial capital available to achieve your objectives.
  
  
• Considering tax at all levels of your financial position: salary, business profits, choice of investments, portfolio rebalancing, structuring and ownership, planned future sale, role of debt, etc.

8. Estate Planning:

• Creating a plan for the distribution of assets after death.
  
  
• Establishing wills, trusts, and powers of attorney.
  
  
• Consideration for the role superannuation, Life insurance and investment bonds may play in your achieving the best outcomes for your loved ones, noting these may not automatically make up part of your Estate.

Benefits of Financial Planning:

1. Goal Achievement: Financial planning helps individuals and families articulate their financial goals and develop a roadmap to achieve them. Clarity and direction allow positive action and implementation, not just intention.
   
   
2. Financial Security: It provides a sense of security by creating a safety net for emergencies, ensuring proper insurance coverage and planning for retirement.
   
   
3. Wealth Accumulation: Through systematic saving and investing, financial planning contributes to wealth accumulation over time.
   
   
4. Risk Management: It helps in identifying and managing financial risks through appropriate insurance coverage, diversified investments and investment strategies that are specifically aligned with different objectives and timeframes.
   
   
5. Tax Efficiency: Strategic tax planning can minimize tax liabilities and maximize after-tax returns on investments.
   
   
6. Confidence and Peace of Mind: Having a well-thought-out financial plan gives individuals confidence and peace of mind, knowing that they are on track to meet their financial goals. It promotes Financial Wellbeing, which is a huge contributor to our quality of life.
   
   

Challenges or Reasons Financial Planning Might Not Be Beneficial:

1. Lack of Commitment: Financial planning requires commitment and discipline. If individuals do not stick to the plan, it may not yield the desired results.
   
   
2. Incomplete Information: If the financial plan is based on incomplete or inaccurate information, it may lead to flawed decisions, ineffective strategies, lost opportunities or unintended future consequences.
   
   
3. Unrealistic Expectations: Setting unrealistic financial goals or expecting quick results can lead to frustration and dissatisfaction with the financial planning process. The risk is that you stop doing the right things and deviate from your plan, often leading to further setbacks and objectives not achieved. Discipline is crucial.
   
   
4. External Factors: Economic downturns, market fluctuations, or unexpected life events can impact the effectiveness of a financial plan, requiring adjustments along the way. If you do not constantly revise your strategy, there is a chance you’re no longer going in the right direction. Further, if you prefer to structure your decisions around predicting or reacting to external factors (fluctuating share markets, for example), you will find this is not congruent with a well thought out and structured strategy where you focus on what you can control.
   
   
5. Poor Implementation: Even with a solid plan, poor implementation can hinder success. Failure to execute the planned actions or adjustments can undermine the benefits of financial planning. Busy people often struggle with this component if trying to do it themselves, either due to time constraints or not knowing the best way to put things in place.

In summary, while financial planning offers numerous benefits, its effectiveness depends on factors such as commitment, acknowledging that your financial journey is unique, accurate information, realistic goal setting, adaptability to external factors and proper implementation.

Engaging a Financial Adviser with your planning needs is not about applying restrictions and rigidity to your life and how you interact with money. It is about providing guidance, leveraging from our experience and building some deliberate structure to provide you with more freedom to live your life.

It is for these reasons that partnering with a high quality and Independent Financial Adviser will give you the greatest chance of success, bringing peace of mind and financial wellbeing.

Contact us today to see how we can help you.