There is no doubt the cost of living has increased to a point whereby most of us need to be aware of our finances.
Simply logging on to your banking app and knowing the approximate value of any investments has never been sufficient, but especially not in our current economic climate.
Every person, or family, needs a financial plan, one which has been comprehensively assembled, analysed and includes actionable steps to reach your specific goals. It should also include an investment plan and an estate plan.
A financial plan is an in-depth overview of your financial situation, your financial goals and the steps to take to achieve them. It is a relatively fluid plan, as there will be changes you need to make along the way when unexpected costs occur, when your circumstances change, or when you revisit your goals.
The first step in creating a financial plan: budgeting
The first thing to do when creating a financial plan is to prepare a detailed monthly budget. This will be a line list that includes:
- Income details – includes salaries, wages, benefits, side-hustles, investment income
- Debts – this may include what you owe on your mortgage, car, credit card or any other debts you owe
- Expenses – includes rent, mortgage payments, food, utilities, school fees, insurances, vet bills, subscriptions, gift purchases, credit card payments, take-away coffee allowance.
At this point you should be able to clearly see how your expenses track to your income. You are aiming for more income than expenses on an annual basis, as this then allows you to move onto the next steps of the financial plan.
The second step in creating a financial plan: goal setting
Each of us has financial goals, whether it be purchasing a new car, saving for a home, renovating a home, purchasing an investment property, planning a holiday, supporting our children as they move away from home, retirement or a myriad of other goals.
By documenting your goals and including them in your financial plan, you will know how to achieve them. Remember to account for inflation. Once goals have been articulated, you can then start on the planning phase of the financial plan.
Step three in creating a financial plan: investments
It is unlikely you will reach any substantial goals without investing your money in something other than your regular savings account. It may be shares, an index fund, a term deposit, an investment property or a combination of some of those that will advance your financial position, so do your research regarding returns and tax liabilities which may apply to those investments and consult a financial adviser.
Step four in creating a financial plan: safeguarding
Using knowledge about your tax liabilities, you want to ensure aspects such as capital gains tax, income tax and superannuation are properly accounted for.
You may also wish to protect the beneficiaries of your estate by utilising certain structures which may be advantageous to them.
Step five in creating a financial plan: maintenance
Maintenance is periodically checking in on your numbers and adjusting them as required. This will keep you on-track to reach those goals you have set.
This process may seem daunting, and if you feel it is too large a task for you to complete, then consider a financial adviser. A good financial adviser will be able to set you on the right path and, with their knowledge and experience, will likely be able to save you, or your estate, a considerable amount of money by structuring your finances appropriately.
For all new Fiducian clients we offer a free 60-minute financial health check*
A financial health check can help you determine how well your finances are doing or what you need to work on to reach your financial goals. By creating good money habits, having a solid financial plan, and regularly performing a financial health check-up can help you reach your money goals.
For more information and tips on creating a financial plan, book a free consultation with Fiducian Financial Services.
*Available at participating offices.