Your finances are not only an integral part of life, they are also highly emotive. Add into that the sheer complexity of successfully managing your money to achieve all your goals in life and you’ve got a subject matter that can feel overwhelming.
As with many areas of life in which we don’t feel confident, seeking professional support can be critical to your success. When it comes to financial matters, financial advice would have historically been your focus. Today, you will be much better served by having financial planning support. But why?
Financial Advice and Financial Planning – what’s the difference?
Financial advice comes in many forms. It actually covers a broad range of areas but is typically more of a question-answering service. Questions answered by a Financial Adviser might include:
Which savings account has the best interest rate?
How can I mitigate my Inheritance Tax?
How much will my pension be worth when I hit retirement age?
Answering questions such as these will give you an informed view of your current and future financial position. But with financial advice, you don’t get any of the ‘why?’.
That’s where financial planning comes in. It takes a much more holistic approach to all aspects of your life from income to savings and pensions to goals and aspirations. With a Financial Planner, you will be at the heart of everything, and a comprehensive plan will be constructed to suit your life today and well into retirement.
Long-term aspirations will be considered as well as concerns so that your financial decisions can be aligned with your lifestyle and goals.
A good Financial Planner will help you to understand not only your finances better, but also how you wish to live your life. That way, what you invest and how you do it will be suited to you. Your Financial Planner will add huge value to your life by supporting you in the following ways:
Your personal goals and aims – knowing what you want to achieve in life will determine your investment approach. If you need a larger pot of money, growth must occur. Or perhaps your investment needs to produce an income. Do you want to retire five years early? Good financial planning will help drive your financial decisions to align with where you want to get to.
Attitude to risk – any investment strategy carries some level of risk. Fundamentally, that means your investment could end up being worth less than you put into it. Cash savings won’t fall in value per se, but inflation can certainly devalue them. Stock prices will rise and fall based on their company’s performance and public sentiment. Some will be much more volatile than others and as with anything, the greater the risk, the greater potential for reward. But the opposite is also true!
Opportunities – complex finances can lead to ill-informed decisions or mistakes. Spotting these issues and correcting them, as well as seeing other ways to improve your financial position would be part of the job of your Financial Planner.
Considerations – most of us know we need to plan for the future and pay into pensions in some way when working. But what kind of life might this pension afford you in retirement? Really understanding this picture is crucial to a fulfilled life in later years so changes can be made if necessary. What about the unexpected? Life has a way of surprising us so what might this do to our lifestyle? Contingency funds are useful but what if you wish to help out a child, or your partner passes away?Cashflow modelling as part of the financial planning process will assess all of this and give you a comprehensive view. It can also then inform you how to safeguard your position in the event of things changing.
Confidence – knowing your finances well enough to live your life as you want to now and in the future will give you peace of mind. In the run up to retirement, you can relax knowing you are on the right path. In retirement, you will know how much you are able to spend without the fear of running out of money. Your Financial Planner will help you really understand your financial position today and what your future also looks like so you can enjoy life without worrying about money.
Support – ongoing advice will be a key aspect of your relationship with your Financial Planner.
Financial advice might be better suited to a solitary meeting but the value in financial planning comes from lifelong support. Changes in your priorities or situation, taxation laws and allowances can all have an influence on your financial plan. Regular interactions with your Financial Planner will allow for the appropriate changes to be made to your plan.
The key difference between financial advice and financial planning is advice focuses purely on your money and your Financial Planner will focus on you. Your Financial Planner will educate and inform you, help determine your lifestyle aspirations and will create a realistic plan to support it all.
Please note:
This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
The value of investments may go down as well as up and you may get back less than you invest.
A pension is a long-term investment, the value of your investment and the income from it may go down as well as up. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
The Financial Conduct Authority does not regulate Cashflow Planning.
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